<PAGE> 1
As filed with the Securities and Exchange Commission on November 20, 1995
1933 Act Registration No. 2-84169
1940 Act File No. 811-3760
===============================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------
FORM N-1A
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933 / /
Pre-Effective Amendment No. / /
Post-Effective Amendment No. 17 /X/
and/or
REGISTRATION STATEMENT
DER THE INVESTMENT COMPANY ACT OF 1940 / /
Amendment No. 18 /X/
---------
G R A D I S O N G R O W T H T R U S T
(Exact Name of Registrant as Specified in Declaration of Trust)
580 Walnut Street, Cincinnati, Ohio 45202
(Address of Principal Executive Offices) (Zip Code)
Registrant's Telephone Number, including Area Code: (513) 579-5700
Copy to:
Bradley E. Turner , Jr. Richard M. Wachterman
Gradison Growth Trust Gradison Growth Trust
580 Walnut Street 580 Walnut Street
Cincinnati, Ohio 45202 Cincinnati, Ohio 45202
(Name and Address of Agent for Service)
It is proposed that this filing will become effective (check appropriate box)
/ / immediately upon filing pursuant to paragraph (b) of Rule
485.
/X/ on December 19, 1995 pursuant to paragraph (b) of Rule 485.
/ / __ days after filing pursuant to paragraph (a) of Rule 485.
on ______________ pursuant to paragraph (a) of Rule 485.
---------
Registrant has heretofore registered an indefinite number of shares of
beneficial interest, without par value, pursuant to Rule 24f-2 under the
Investment Company Act of 1940, as amended. Registrant's Rule 24f-2 Notice was
filed on May 25, 1995.
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<PAGE> 2
GRADISON GROWTH TRUST
CONTENTS OF POST-EFFECTIVE AMENDMENT
The post-effective amendment to the registration statement of Gradison Growth
Trust contains the following documents:
Facing Sheet
Contents of Post-Effective Amendment
Cross-Reference Sheet
Part A - Prospectus
Gradison-McDonald International Fund
Part B - Statement of Additional Information
Gradison-McDonald International Fund
Part C - Other Information
Signature Page
Exhibits
- --------------------------
The currently effective prospectuses and statements of additional information
for the following series of the Registrant are not affected by this Amendment:
Gradison-McDonald Growth and Income Fund
Gradison-McDonald Established Value Fund
Gradison-McDonald Opportunity Value Fund.
<PAGE> 3
GRADISON GROWTH TRUST
Cross-Reference Sheet
Pursuant to Item 501(b) of Regulation S-K
Under the Securities Act of 1933
<TABLE>
<CAPTION>
Form N-1A
Item Number Location in Prospectus
- ----------- ----------------------
<S> <C>
1. Cover Page . . . . . . . . . . . . . . Cover Page of Prospectus
2. Synopsis . . . . . . . . . . . . . . . Expense Summary
3. Condensed Financial Information. . . . Performance Calculations
Financial Highlights
4. General Description of Registrant. . . Cover Page; Investment Objective,
Policies, and Risk Factors;
Foreign Securities; Futures
Transactions; Risk of Futures
and Forward Foreign Currency
Contracts; Low Capitalization
Stocks; Investment Restrictions
and Fundamental Policies;
General Information
5. Management of Fund . . . . . . . . . . Management of the Fund;
Dividends and Distributions
6. Capital Stock and Other Securities . . Cover Page; Dividends and
Distributions; Taxes; General
Information
7. Purchase of Securities Being Purchases and Redemptions; Net
Offered Asset Value; Optional
Shareholder Services;
Distribution Plan; Management
of the Fund
8. Redemption or Repurchase . . . . . . . Purchases and Redemptions
9. Pending Legal Proceedings . . . . . . Not applicable
<CAPTION>
Location in Statement
of Additional Information
-------------------------
<S> <C>
10. Cover Page . . . . . . . . . . . . . Cover Page
11. Table of Contents . . . . . . . . . . Table of Contents
12. General Information and History . . . Not applicable
13. Investment Objectives and Policies . . Risk Factors and Investment
Techniques; Investment
Restrictions; Portfolio
Transactions and Brokerage;
14. Management of the Fund . . . . . . . . Trustees and Officers of the
Trust
15. Control Persons and Principal
Holders of Securities . . . . . . . . Not applicable
16. Investment Advisory and Other
Services . . . . . . . . . . . . . . Investment Adviser
</TABLE>
<PAGE> 4
<TABLE>
<S> <C>
17. Brokerage Allocation and Other
Practices . . . . . . . . . . . . . . Portfolio Transactions and
Brokerage
18. Capital Stock and Other Securities . . Description of the Trust
19. Purchase, Redemption and Pricing of
Securities Being Offered . . . . . . . Purchase of Shares; Redemption
of Shares; Net Asset Value
20. Tax Status . . . . . . . . . . . . . . Taxes
21. Underwriters . . . . . . . . . . . . . Investment Adviser
22. Calculation of Yield Quotations
of Money Market Funds . . . . . . . . Not applicable
23. Financial Statements . . . . . . . . . Financial Statements
</TABLE>
<PAGE> 5
INTERNATIONAL
FUND
Duotone of envelopes and phone
GRADISON-MCDONALD
Duotone of globe, calculator,
foreign money and clock on
To find out more about the desk with tagline "Your Future
Starts Today."
GRADISON-MCDONALD
INTERNATIONAL FUND
or other funds in the family
CALL
1-800-869-5999
OR WRITE
Gradison-McDonald Mutual Funds
580 Walnut Street
Cincinnati, Ohio 45202
GRADISON-MCDONALD
The investment return and value of an
investment in the Fund will fluctuate
so that an investor's share, when
redeemed. may be worth more or less P R O S P E C T U S
than the original cost. McDonald &
Company Securities, Inc. - Distributor
DECEMBER 19, 1995
<PAGE> 6
SIGNIFICANT FEATURES
Professional Management
Portfolio Diversification
Distributions Paid in Additional Shares or Cash
Daily Liquidity at Net Asset Value
$1,000 Minimum Initial Investment
$50 Minimum Additional Investment
Individual Retirement Accounts
LIKE ALL MUTUAL FUNDS, THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED
BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS DECEMBER 19, 1995
INTERNATIONAL
FUND
A COMMON STOCK FUND INVESTING
IN NON-UNITED STATES COMPANIES
The Gradison-McDonald International Fund ("Fund") is a diversified series of
the Gradison Growth Trust, an open-end management investment company. The Fund
seeks growth of capital. The Fund invests primarily in a diversified portfolio
of common stocks of non-United States companies. McDonald & Company
Securities, Inc., ("McDonald" or the "Adviser") is the investment adviser for
the Fund. Blairlogie Capital Management ("Blairlogie"), is the investment
sub-adviser of the Fund ("Portfolio Manager"). The Gradison Division of
McDonald ("Gradison") acts as transfer agent of the Fund. INVESTING IN FOREIGN
SECURITIES PRESENTS SPECIAL RISKS AND INVESTING IN EMERGING MARKET COUNTRIES
PRESENTS ADDITIONAL RISKS. SEE "INVESTMENT OBJECTIVE, POLICIES, AND RISK
FACTORS" AND "FOREIGN SECURITIES" IN THIS PROSPECTUS.
This Prospectus is designed to provide you with information that you should
know before investing and should be retained for future reference. A Statement
of Additional Information for the Fund, dated December 19, 1995, has been filed
with the Securities and Exchange Commission and is incorporated herein by
reference. This Statement is available upon request without charge from the
Fund by calling the phone numbers provided there.
For all information (including purchases, redemptions, and most recent share
price), call 579-5000 from Cincinnati, Ohio or 1-800-869-5999 toll free.
Shares of the Fund are not deposits or obligations of any credit union or other
depository institution and are not guaranteed or endorsed by the Federal
Deposit Insurance Corporation or any other government agency.
Graphic of man on the phone
1-800-869-5999
<PAGE> 7
TABLE OF CONTENTS
Expense Summary 2
Financial Highlights 3
Investment Objective Policies and Risk Factors 4
Foreign Securities 6
Futures Transactions 7
Forward Foreign Currency Contracts
Risks of Futures and Forward Foreign 8
Currency Contracts
Low Capitalization Stocks 9
Investment Restrictions and Fundamental Policies 9
Purchases and Redemptions 10
Dividends and Distributions 11
Taxes 11
Net Asset Value 12
Optional Shareholder Services 12
Management of the Fund 13
Performance Calculations 15
Individual Retirement Accounts 15
General Information 15
EXPENSE SUMMARY
SHAREHOLDER TRANSACTION EXPENSES
Maximum sales load on purchases None
====
================================================
ANNUAL FUND OPERATING EXPENSES
(as a percentage of average net assets)*
Management Fees (after waiver) .35%
12b-1 Fees .50%
Other Expenses 1.15%
-----
TOTAL FUND OPERATING EXPENSES 2.00%
=====
================================================
The Fund is sold without a front-end or back-end sales charge. The Fund pays
an annual asset based distribution fee of .25% and service fee of .25% of net
assets. As a result of the distribution fee, long-term shareholders may pay
more than the economic equivalent of the maximum front-end sales charge
permitted under the rules of the National Association of Securities Dealers.
However, in order for a Fund investor to exceed the maximum permitted front-end
sales charge, a continuous investment in the Fund for 25 years would be
required.
*Since the Fund has not yet been in operation for a full year, the "other
expenses" category is an estimate. The "management fee" category would be 1.00%
absent fee waiver by the Adviser. It is estimated that the total expenses of
the Fund absent waiver by the Adviser would be 2.65%. The fee waiver and
expense reimbursement will be in effect through August 1, 1996 and may be
continued thereafter. For further information about fee waiver and expense
reimbursement, see "Management of the Fund."
The purpose of the preceding table is to assist investors in understanding the
various costs and expenses that an investor in the Fund will bear directly and
indirectly. (For more information about Fund expenses, see "Purchases and
Redemptions," and "Management of the Fund.")
Example: You would pay the following expenses on a $1,000 investment assuming a
5% annual return* and redemption at the end of each period:
1 Year | 3 Years
$20 | $63
The 5% annual return is a standardized rate prescribed for use by all mutual
funds for the purpose of this example and does not represent the past or future
return of the Fund.
THE EXAMPLE SHOULD NOT BE CONSIDERED A REPRESENTATION OF PAST OR FUTURE
EXPENSES. ACTUAL EXPENSES MAY BE GREATER OR LESS THAN THOSE SHOWN.
2
<PAGE> 8
FINANCIAL HIGHLIGHTS
The table below summarizes the financial highlights of the Fund's operations
from the date of public offering, May 31, 1995, through September 30, 1995. The
information is expressed in terms of a single share outstanding throughout the
period and has not been audited.
<TABLE>
<CAPTION>
FROM MAY 31, 1995* TO
SEPTEMBER 30, 1995
<S> <C>
Net asset value at beginning of period $ 15.000
---------
Income from investment operations:
Net investment income .118
Net realized and unrealized gain (loss) on investments (.102)
---------
Total income from investment operations .016
---------
Distributions to shareholders -
---------
Net asset value at end of period $ 14.984
=========
Total return (1) (.13%)
=========
Ratios/Supplemental data:
Net assets at end of period (in millions) $ 10.2
Ratios net of fees waived by the adviser (2)(3):
Ratio of expenses to average net assets 0.92%
Ratio of net investment income to average net assets 4.81%
Ratios assuming no adviser waiver of fees (2)(3):
Ratio of expenses to average net assets 3.80%
Ratio of net investment income to average net assets 1.93%
Portfolio turnover rate 0.00%
====================================================================================
<FN>
(1) Total return represents the actual return over the period and has not been
annualized.
(2) The adviser absorbed expenses of the Fund through waiver of fees.
(3) Annualized.
*Date of public offering
</TABLE>
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3
1-800-869-5999
<PAGE> 9
INVESTMENT OBJECTIVE
POLICIES AND RISK FACTORS
The investment objective of the Fund is growth of capital. In pursuing this
objective, the Fund invests primarily in a diversified portfolio of common
stocks of non-United States companies. The Fund will invest in both "emerging
market" countries and more developed countries. The Fund generally will invest
approximately 30% of its assets in the securities of issuers in emerging market
countries and such investments will normally be in securities of more than
three different countries. However, between monthly rebalancing of the Fund
between securities of emerging and developed countries, the percentage of the
Fund's assets invested in emerging countries could temporarily exceed 30% of
the Fund's assets as a result of market appreciation or purchase of such
securities. At any time, the Fund's investment in securities of emerging market
countries may constitute less than 30% of the Fund's assets. Some of the
countries considered to be emerging market countries and in which investments
may be made are:
Argentina Mexico
Brazil Pakistan
Chile Peru
China (Hong Kong) Philippines
Colombia Portugal
Greece South Korea
India Sri Lanka
Indonesia Taiwan
Jordan Thailand
Malaysia Turkey
Venezuela
For purposes of allocating the Fund's investments, a company will be considered
to be located in a country based on the following criteria: the country in
which the company is domiciled, the country in which it is primarily traded,
the country from which it derives a significant portion of its goods or where
its services are produced.
The Portfolio Manager applies two levels of screening in selecting investments
for the Fund. First, an active country selection model analyzes world markets
and assigns a relative value ranking, or "favorability weighting," to various
countries to determine markets which are relatively undervalued. Second, at the
stock selection level, quality analysis and value analysis are applied to each
security, assessing variables such as balance sheet strength and earnings
growth (quality factors) and performance relative to the industry,
price-to-earnings ratios and price-to-book ratios (value factors). This
two-level screening method identifies what the Portfolio Manager believes are
undervalued securities for purchasing as well as provides a sell discipline for
securities the Portfolio Manager believes are fully valued. In selecting
securities, the Portfolio Manager considers, to the extent practicable, and on
the basis of information available to it for research, a company's
environmental business practices.
Most of the foreign securities in which the Fund invests will be denominated in
foreign currencies. The Fund may engage in foreign currency transactions to
attempt to protect itself against fluctuations in currency exchange rates in
relation to the U.S. dollar or to increase yield. Such foreign currency
transactions may include forward foreign currency contracts and currency
exchange transactions on a spot (i.e., cash) basis. See "Forward Foreign
Currency Transactions" in this Prospectus.
The Fund may purchase and sell stock index futures contracts. See "Futures
Transactions" in this Prospectus and "Risk Factors and Investment Techniques --
Futures and Currency Strategies" in the Statement of Additional Information for
more information.
Investing in the securities of foreign issuers involves special risks and
considerations not typically associated with investing in U.S. companies. For
a description of these risks, see "Foreign Securities" in this Prospectus.
The Fund will invest primarily (normally at least 65% of its assets) in common
stock of non-United States companies. The Fund may maintain a portion of its
assets, which will usually not exceed 10%, in U.S. Government
4
<PAGE> 10
securities, high-quality debt securities (the maturity or remaining maturity of
which will not exceed five years) and money market obligations (issued by U.S.
and foreign issuers and that are denominated in U.S. dollars or foreign
currency), and in cash to provide for payment of the Fund's expenses and to
permit the Fund to meet redemption requests. The Fund may temporarily not be
invested primarily in equity securities after receipt of significant new
monies. The Fund may temporarily not contain the number of stocks in which the
Fund normally invests if the Fund does not have sufficient assets to be fully
invested, or pending the Portfolio Manager's ability to prudently invest new
monies.
It is the policy of the Fund to normally be as fully invested in common stock
as practicable at all times and to invest in securities of more than three
different countries other than the United States. The Fund does not intend to
attempt to "time" the market. Accordingly, investors in the Fund bear the risk
of general declines in stock prices, and bear any risk that the Fund's exposure
to such declines will not be lessened by investment in fixed income securities.
However, for temporary defensive purposes, such as when the Portfolio Manager
believes that the market for non-United States equity securities is extremely
unfavorable, the Fund may invest an unlimited portion of its assets in U.S.
government debt securities and money market obligations issued by U.S. issuers.
For more detailed information on the investment techniques which the Fund may
utilize, as well as information on the types of securities in which the Fund
may invest, including information on U.S. Government securities, corporate debt
securities, variable and floating rate securities, preferred stocks,
convertible bonds, repurchase agreements, securities purchased on a when-issued
or firm-commitment basis, warrants, and lending of portfolio securities, see
the Statement of Additional Information.
There can be no assurance that the Fund will achieve its investment objective.
The Fund is subject to the risk of changing economic, business, and other
financial conditions. As with any security, the risk of loss is inherent in
investment in shares of the Fund. Because the market value of the Fund's
investments will change, the net asset value per share of the Fund will also
vary.
The securities in which the Fund invests and the investment techniques that may
be used by the Fund all have attendant risks of varying degrees. With respect
to common stock, there can be no assurance of capital appreciation and there is
a risk of market decline. With respect to fixed income securities, including
money market instruments, there is the risk that the issuer of a security may
not be able to meet its obligation to make scheduled interest or principal
payments. In addition, the value of fixed income securities generally rises and
falls inversely with interest rates, and the longer the maturity of the
security, the more volatile it may be in terms of changes in value.
The Fund's portfolio will be managed without restriction as to portfolio
turnover, except as is imposed on its ability to engage in short-term trading
by provisions of the federal tax laws. It is anticipated that the annual rate
of portfolio turnover will not exceed 150%. A high rate of turnover will
increase the transaction costs of the Fund (securities commissions and indirect
transaction costs for fixed income securities) and may result in greater
taxable distributions. See "Taxes" in the Prospectus and "Portfolio
Transactions and Brokerage" in the Statement of Additional Information.
Information about the types of securities in which the Fund may invest:
COMMON STOCKS
Stocks represent shares of ownership in a company. After other claims are
satisfied, common stockholders participate in company profits on a pro rata
basis; profits may be paid out in dividends or reinvested in the
Graphic of man on the phone
5
1-800-869-5999
<PAGE> 11
company to help it grow. Increases and decreases in earnings are usually
reflected in a company's stock price, so common stocks generally have the
greatest appreciation and depreciation potential of all corporate securities.
CONVERTIBLE SECURITIES AND WARRANTS
The Fund may invest in debt or preferred equity securities convertible into or
exchangeable for equity securities. Traditionally, convertible securities have
paid dividends or interest at rates higher than common stocks but lower than
non-convertible securities. They generally participate in the appreciation or
depreciation of the underlying stock into which they are convertible, but to a
lesser degree. In recent years, convertibles have been developed which combine
higher or lower current income with options. Warrants are options to buy a
stated number of shares of common stock at a specified price any time during
the life of the warrants (generally, two or more years).
FIXED INCOME SECURITIES
Fixed income securities represent debt or preferred stock of the issuer on
which a fixed amount of interest is paid. The price of a bond or preferred
stock fluctuates with changes in interest rates, rising when interest rates
fall and falling when interest rates rise.
ILLIQUID SECURITIES
The Fund may invest in illiquid securities. However, the Fund may not invest
in securities that are illiquid because they are subject to legal or
contractual restrictions on resale, in repurchase agreements maturing in more
than seven days, or other securities which are illiquid if, as a result of such
investment, more than 15% of the net assets of the Fund (taken at market value
at the time of such investment) would be invested in such securities.
These percentage restrictions set forth above do not limit purchases of
restricted securities that are eligible for sale to qualified institutional
purchasers pursuant to Rule 144A under the Securities Act of 1933, provided
that those securities have been determined to be liquid by the Board of
Trustees of the Fund or by the Portfolio Manager under Board-approved
guidelines. Those guidelines take into account the trading activity for such
securities and the availability of reliable pricing information, among other
factors. If there is a lack of trading interest in a particular Rule 144A
security, the Fund's holding of that security may be deemed to be illiquid.
FOREIGN SECURITIES
The Fund may invest directly in foreign equity securities; U.S. dollar or
foreign currency denominated foreign corporate debt securities; foreign
preferred securities; certificates of deposit, fixed time deposits and banker's
acceptances issued by foreign banks, obligations of foreign governments or
their subdivisions, agencies and instrumentalities, international agencies and
supranational entities; and securities represented by American Depository
Receipts ("ADRs"), European Depository Receipts ("EDRs"), or Global Depository
Receipts ("GDRs"). ADRs are dollar denominated receipts issued generally by
domestic banks and representing the deposit with the bank of a security of a
foreign issuer, and are publicly traded on exchanges or over-the-counter in the
United States. EDRs and GDRs are receipts similar to ADRs. EDRs are issued and
traded in Europe, and GDRs are issued and traded in several international
financial markets.
Investing in the securities of issuers in any foreign country involves special
risks and considerations not typically associated with investing in U.S.
companies. These include changes in foreign exchange rates affecting the value
of securities denominated or quoted in currencies other than the U.S. dollar;
differences in accounting, auditing and financial reporting standards;
generally higher commission rates on foreign portfolio transactions; the
possibility of nationalization, expropriation or confiscatory taxation; adverse
changes in investment or exchange control regulations (which may include
suspension of the ability to transfer currency from a country); government
interference, including government ownership of companies in certain sectors;
wage
6
<PAGE> 12
and price controls, or imposition of trade barriers and other protectionist
measures; political instability; potential restrictions on the flow of
international capital; reduced levels of publicly available information
concerning issuers; and reduced levels of governmental regulation of foreign
securities markets. Additionally, foreign securities and dividends and interest
payable on those securities may be subject to foreign taxes, including foreign
withholding taxes, and other foreign taxes may apply with respect to securities
transactions. Transactions in foreign securities may involve greater time from
the trade date until the settlement date than for domestic securities
transactions, and may involve the risk of possible losses through the holding
of securities by custodians and in securities depositories in foreign
countries. Foreign securities often trade with less frequency and volume than
domestic securities and therefore may exhibit greater price volatility.
Additional costs associated with an investment in foreign securities may
include higher transaction costs and the cost of foreign currency conversions.
The Fund and its shareholders may encounter substantial difficulties in
obtaining and enforcing judgments against non-U.S. resident individuals and
companies.
Investment in emerging market countries presents risks in greater degree than,
and in addition to, those presented by investment in foreign issuers in
general. A number of emerging market countries restrict, to varying degrees,
foreign investment in stocks. Repatriation of investment income, capital, and
the proceeds of sales by foreign investors may require governmental
registration and/or approval in some emerging market countries. A number of the
currencies of developing countries have experienced significant declines
against the U.S. dollar in recent years, and devaluation may occur subsequent
to investments in these currencies by the Fund. Inflation and rapid
fluctuations in inflation rates have had and may continue to have negative
effects on the economies and securities markets of certain emerging market
countries.
Many of the emerging securities markets are relatively small, have low trading
volumes, suffer periods of relative illiquidity, and are characterized by
significant price volatility. There is a risk in emerging market countries that
a future economic or political crisis could lead to price controls, forced
mergers of companies, expropriation or confiscatory taxation, seizure,
nationalization, or creation of government monopolies, any of which may have a
detrimental effect on the Fund's investment.
FUTURES TRANSACTIONS
The Fund may purchase and sell stock index futures contracts (1) in order to
attempt to reduce the overall investment risk in its portfolio ("hedging") or
(2) to enhance yield. The use of stock index futures contracts for non-hedging
purposes may be considered speculative. For example, the Fund may purchase
stock index futures contracts, in lieu of investing in individual stocks, in
order to maintain liquidity, because the Portfolio Manager has not yet selected
the individual securities in which to invest, or because the stock index future
presents a more favorable investment than investment in individual securities.
There can be no assurance that these hedging or yield enhancement efforts will
succeed. For more information regarding stock index futures contracts, see
"Risk Factors and Investment Techniques -- Futures and Currency Strategies" in
the Statement of Additional Information.
To the extent that the Fund enters into futures contracts other than for bona
fide hedging purposes (as defined by the Commodity Futures Trading Commission
("CFTC")), the aggregate initial margin required to establish those positions
will not exceed 5% of the liquidation value of the Fund's portfolio, after
taking into account unrealized profits and unrealized losses on any contracts
the Fund has entered into. This limitation does not limit the percentage of the
Fund's assets at risk to 5%. The Fund may enter into futures contracts only to
the extent that obligations under such contracts represent not more than 20% of
the Fund's assets. These
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<PAGE> 13
guidelines may be modified by the Trust's Board of Trustees without a
shareholder vote.
The Fund will only enter into stock index futures contracts which are
standardized and traded on a U.S. or foreign exchange or board of trade, or
similar entity, or quoted on an automated quotation system. The Fund may trade
futures contracts not only on U.S. domestic markets, but also on exchanges
located outside of the United States. Foreign markets may offer advantages such
as trading in indices that are not currently traded in the United States.
Foreign markets, however, may have greater risk potential than domestic
markets. Unlike trading on domestic commodity exchanges, trading on foreign
commodity exchanges is not regulated by the CFTC and may be subject to greater
risk than trading on domestic exchanges. For example, some foreign exchanges
are principal markets so that no common clearing facility exists and a trader
may look only to the broker for performance of the contract. Trading in foreign
futures contracts may not be afforded certain of the protective measures
provided by the Commodity Exchange Act, the CFTC's regulations, and the rules
of the National Futures Association and of any domestic futures exchange,
including the right to use reparations proceedings before the CFTC and
arbitration proceedings provided by the National Futures Association or any
domestic futures exchange. Margin deposits for foreign futures transactions may
not be provided the same protections as deposits provided in respect of
transactions on U.S. futures exchanges. In addition, any profits that the Fund
might realize in trading could be eliminated by adverse changes in the exchange
rate of the currency in which the transaction is denominated, or the Fund could
incur losses as a result of changes in the exchange rate.
Futures contracts constitute "derivative" instruments. Derivative instruments
are instruments the value of which is determined by the movement in value of
other securities.
FORWARD FOREIGN CURRENCY CONTRACTS
The Fund may purchase and sell forward currency contracts to attempt to manage
its foreign currency exchange rate exposure.
For example, the Fund may use forward contracts to shift the Fund's exposure to
foreign currency exchange rate changes from one foreign currency to another. If
the Fund owns securities denominated in a foreign currency and the Portfolio
Manager believes that this currency will decline relative to another currency,
the Fund might enter into a forward contract to sell the appropriate amount of
the first foreign currency with payment to be made in the second foreign
currency. The Fund might also use two forward contracts (one exchanging the
first foreign currency into U.S. dollars and the second exchanging U.S. dollars
into the second foreign currency) to accomplish the same purpose. Transactions
that use two foreign currencies are sometimes referred to as "cross hedging."
Use of a different foreign currency magnifies the Fund's exposure to foreign
currency exchange rate fluctuations.
RISKS OF FUTURES AND FORWARD
FOREIGN CURRENCY CONTRACTS
Although the Fund might not employ any of these instruments, its use of futures
and forward contracts would involve certain investment risks and transaction
costs to which it might otherwise not be subject. These risks include: (1)
dependence on the Portfolio Manager's ability to predict fluctuations in the
general securities markets or appropriate market sector and movements in
currency markets; (2) imperfect correlation, or even no correlation, between
movements in the price of forward contracts or futures contracts and the
movements in the price of the currency or security hedged or used for cover;
(3) the fact that the skills and techniques used to trade futures contracts or
to use forward currency contracts are different from those needed to select the
securities in which the Fund invests; (4) lack of assurance that a liquid
secondary market will exist for any
8
<PAGE> 14
particular futures contract at any particular time; (5) the possible inability
of the Fund to purchase or sell a portfolio security at a time when it would
otherwise be favorable for it to do so, or the possible need for the Fund to
sell a security at a disadvantageous time, due to the need for the Fund to
maintain "cover" or to segregate securities in connection with its use of these
instruments; and (6) the possible need to defer closing out of certain futures
contracts and forward currency contracts in order to qualify or continue to
qualify for the beneficial tax treatment afforded regulated investment
companies under the Code. See "Taxes" in the Fund's Statement of Additional
Information. If the Portfolio Manager incorrectly forecasts securities market
movements or currency exchange rates in utilizing a strategy for the Fund, the
Fund would be in a better position if it had not hedged at all. If the Fund
attempts to hedge securities it owns by sale of a futures contract which is not
composed of the same securities as those owned, there is a greater risk that
the hedge will not be successful. There can be no assurance that the Fund's
hedging or yield enhancement strategies will succeed.
LOW CAPITALIZATION STOCKS
The Fund may invest in the common stock of companies with market capitalization
of less than $500 million. Investments in larger companies present certain
advantages in that such companies generally have greater financial resources,
more extensive research and development, manufacturing, marketing and service
capabilities, and more stability and greater depth of management and technical
personnel. Investments in smaller, less seasoned companies may present greater
opportunities for growth but also may involve greater risks than are
customarily associated with more established companies. The securities of
smaller companies may be subject to more abrupt or erratic market movements
than larger, more established companies. These companies may have limited
product lines, markets or financial resources, or they may be dependent upon a
limited management group. Their securities may be traded only in the over-
the-counter market or on a foreign securities exchange. As a result, the
disposition by the Fund of securities to meet redemptions may require the Fund
to sell these securities at a disadvantageous time, or at disadvantageous
prices, or to make many small sales over a lengthy period of time.
INVESTMENT RESTRICTIONS AND
FUNDAMENTAL POLICIES
The Fund is subject to investment restrictions that are described more fully in
the Statement of Additional Information. Those investment restrictions so
designated and the investment objective of the Fund are "fundamental policies"
of the Fund, which means that they may not be changed without a vote of a
majority of the outstanding voting securities of the Fund. All other investment
policies and practices described in this Prospectus and in the Statement of
Additional Information are not fundamental, meaning that the Board of Trustees
may change them without shareholder approval. Shareholders will be notified of
material changes. The vote of a majority of the outstanding voting securities
of the Fund means the vote, at an annual or special meeting, of (a) 67% or more
of the voting securities present at such meeting, if the holders of more than
50% of the outstanding voting securities of the Fund are present or represented
by proxy; or (b) more than 50% of the outstanding voting securities of the
Fund, whichever is less.
A brief description of some of the fundamental investment restrictions follows.
The Fund will not, with respect to 75% of its assets, invest more than 5% of
its assets (taken at market value at the time of such investment) in securities
of any one issuer, except that this restriction does not apply to U.S.
Government securities. The Fund will not, with respect to 75% of its assets,
invest in more than 10% (taken at market value at the time of such investment)
of any one issuer's outstanding
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voting securities, except that this restriction does not apply to U.S.
Government securities. The Portfolio will not concentrate more than 25% of its
assets in any particular industry, except that this restriction does not apply
to U.S. Government securities. The Fund may borrow from banks as a temporary
measure for extraordinary or emergency purposes, such as to facilitate
redemptions, up to 33 1/3% of the value of its total assets (including the
amount borrowed) less liabilities (other than borrowings). This borrowing may
be unsecured or secured. The Fund may, in connection with permissible
borrowings, transfer as collateral, securities owned by the Fund.
PURCHASES AND REDEMPTIONS
HOW TO PURCHASE SHARES
You may purchase shares of the Fund by bringing or mailing funds to Gradison,
McDonald, or the Fund. Checks should be made payable to the order of
"Gradison-McDonald International Fund" and should be accompanied by your
account name, and account number if one has been assigned. A completed Account
Information Form must accompany or precede the initial purchase. The minimum
investment required to open an account in the Fund, including Individual
Retirement Accounts, is $1,000 and additional investments must be at least $50.
These minimums may be waived for certain group purchases. The $1,000 minimum
initial investment is waived while an Automatic Investment Plan of at least $50
per month is in effect. Purchase orders become effective when the Fund receives
the necessary information about your account and provision for payment has been
made.
HOW TO REDEEM SHARES
You may redeem Fund shares without charge by sending a signed redemption
request to the Fund identifying the account name and number and the number of
shares or dollar amount to be redeemed. You may redeem shares by telephone and
have the proceeds of your redemption mailed to the address on the Fund's
records.
The Fund normally makes payment for redeemed shares within one business day
and, except in extraordinary circumstances, within seven days after receipt of
a properly executed redemption request. The Fund may delay payment for the
redemption of shares where the shares were purchased with a personal check (or
any other method of payment subject to collection), but only until the purchase
payment has cleared, which may be up to 15 days from the day the purchase
payment is received by the Fund. If you need more immediate access to your
investment, you should consider purchasing shares by wire or other immediately
available funds. Shareholders may make special arrangements for wire transfer
of redemption proceeds by contacting the Fund in advance of a share redemption.
TRANSACTIONS THROUGH GRADISON
AND MCDONALD
Investors who maintain brokerage accounts with Gradison or McDonald may
purchase or redeem Fund shares without incurring any fees. The Fund may agree
to modify or waive its purchase and redemption procedures or requirements in
order to facilitate these transactions. No such modification or waiver will
result in an investor being assessed a fee by the Fund in connection with any
purchase or redemption of shares.
ADDITIONAL PURCHASE AND
REDEMPTION INFORMATION
All purchase and redemption information and authorizations (except those
effected by Gradison or McDonald) should be mailed or delivered to
Gradison-McDonald Mutual Funds, 580 Walnut Street, Cincinnati, Ohio 45202.
All purchases and redemptions are made at the net asset value per share next
calculated after receipt of a purchase order (and provision for payment has
been made) or a valid redemption request. Share certificates are not issued.
Account transactions are reported on periodic statements. The Fund reserves the
right to redeem shares in any account if the value of that
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account falls below $500. However, shareholders will be given notice and 60
days to increase the value to at least the minimum amount.
Under extraordinary circumstances, such as periods of drastic economic or
market changes, it is possible that you might not be able to reach the Fund by
telephone to effect a redemption. If such an occasion were ever to occur, you
can make a redemption request in writing (by mail or personally delivered) to
the Fund's offices. Shareholders who have brokerage accounts with Gradison or
McDonald can request that their Investment Consultant arrange the redemption.
The telephone redemption feature may be terminated or modified upon 30 days'
notice to shareholders.
The Fund, and McDonald, and their officers and employees will not be liable for
following instructions communicated by telephone that are reasonably believed
to be genuine. The Fund will employ reasonable procedures to confirm that
instructions communicated by telephone are genuine, and if it does not, in the
view of the Securities and Exchange Commission, the Fund may be liable for any
losses resulting from unauthorized instructions. Telephone transactions are
available to all shareholders as a standard service.
DIVIDENDS AND DISTRIBUTIONS
Substantially all of the net investment income of the Fund, any net capital
gains (net profits on the sale of portfolio securities and from certain futures
transactions, less any available capital loss carryovers), and any net gains
from foreign currency transactions realized by the Fund will be distributed to
shareholders at least annually. Additional distributions are sometimes
necessary to meet tax requirements. The record and distribution dates for
income dividends and capital gain distributions will be as determined by the
Board of Trustees. Unless you direct otherwise, all income dividends and
capital gain distributions from the Fund are automatically paid in additional
shares of the Fund at the net asset value for such shares on the payment date.
TAXES
The Fund intends to distribute to shareholders substantially all of its net
investment income and net capital and foreign currency gains. All dividends and
capital gains are taxable to shareholders whether they are paid in shares or
received in cash, except as to shareholders who are exempt from taxation or
entitled to tax deferral. Dividends derived from net investment income and
distributions of any net realized short-term capital gains and any net realized
gains from certain foreign currency transactions are taxable to shareholders as
ordinary income. Long-term capital gains distributions are taxable as such
regardless of how long shares of the Fund have been held.
Special rules may apply if the Fund invests in certain foreign companies, the
bulk of the gross income of which is derived from investment activity, or at
least half of the assets of which are investment assets (such companies are
classified under the Code as passive foreign investment companies ("PFICs")).
Pursuant to these rules, among other things, (i) the Fund may be subject to
federal income tax (and an interest charge) on distributions from, or on the
gain from the sale of the stock of, such foreign companies, even though the
Fund distributes the corresponding income to shareholders and (ii) gain from
the sale of the stock of such foreign companies may be treated as ordinary
income. For a further discussion of these special rules, including certain tax
elections that may be available, see the Statement of Additional Information
under "Taxes."
Shareholders of the Fund who are U.S. citizens or residents may be able to
claim a foreign tax credit or deduction on their U.S. income tax returns with
respect to foreign taxes paid by the Fund. If, at the end of the fiscal year of
the Fund, more than 50% of the value of the Fund's total assets is represented
by stock or securities of foreign corporations, the Fund may
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make an election permitted by the Code to treat certain foreign taxes it paid
as having been paid by its shareholders. In this case, shareholders who are
U.S. citizens or residents, or U.S. corporations may claim a foreign tax credit
or deduction (but not both) on their U.S. income tax returns, subject to
certain rules and limitations. If the Fund does not make the election,
shareholders will not claim the foreign tax credit or deduction, but the
dividends they receive and report as income will be net of such foreign tax
paid by the Fund. The Fund will not make this election for the tax year ending
December 31, 1995.
The foregoing is only a summary of some important generally applicable Federal
income tax provisions in effect as of the date of this Prospectus; see the
Statement of Additional Information for further information. There may be other
Federal, state, or local tax considerations applicable to a particular
investor. Each year, shareholders will be notified of the amount and Federal
tax status of all distributions paid during the prior year.
NET ASSET VALUE
The net asset value of the shares of the Fund is generally calculated once
daily, as of the close of regular trading on the New York Stock Exchange
(generally 4:00 P.M. Eastern time) on each day that the Exchange is open. The
net asset value per share of the Fund, which is the price at which shares are
purchased and redeemed, is computed by dividing the value of the Fund's net
assets (assets minus liabilities) by the number of shares outstanding of the
Fund. Securities owned by the Fund are generally valued on the basis of market
quotations, including prices provided by pricing services.
The value of portfolio securities that are traded on exchanges outside the
United States is based upon the price on the exchange as of the close of
business of the exchange immediately preceding the time of valuation (or as of
4:00 P.M. Eastern time, if that is earlier). Quotations of foreign securities
in foreign currency are converted to U.S. dollar equivalents using the foreign
exchange quotation in effect at the time net asset value is computed. When
market quotations for futures positions held by the Fund are readily available,
those positions will be valued based upon such quotations. Securities and other
assets for which market quotations are not readily available are valued at fair
value determined by or under the direction of the Trust's Board of Trustees. It
is possible that the calculation of the net asset value of the Fund may not
take place contemporaneously with the determination of the prices of portfolio
securities used in such calculation. Events affecting the values of portfolio
securities that occur between the time their prices are determined and 4:00
P.M. Eastern time, and at other times, may not be reflected in the calculation
of net asset value. If events materially affecting the value of such securities
occur during such period, then these securities will be valued at fair value as
determined by the Fund's management and approved in good faith by or under the
direction of the Board of Trustees.
OPTIONAL SHAREHOLDER SERVICES
AUTOMATIC INVESTMENT PLAN
You may arrange for a fixed amount of money to be transferred on a regular
automatic basis from your bank or other depository account to your Fund
account. For additional information, obtain the Gradison-McDonald Automatic
Investment Plan form from the Fund.
DISTRIBUTION OPTIONS
You may elect (on the Account Information Form) to automatically receive cash
payments of dividends and/or capital gain distributions. (For this purpose,
short-term capital gain distributions are considered dividends.) You may change
or terminate this election at any time by written notice to the Fund.
AUTOMATIC PAYMENT PLAN
If your account has a value of at least $10,000, you may elect (on the Account
Information Form) to have
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monthly or quarterly payments of a specified amount (but not less than $50)
mailed to you or anyone specified on the form. You may change or terminate this
election at any time by written notice to the Fund. Because the Fund cannot
guarantee that payments will be made on the exact date specified, the Plan
should not be utilized for time-sensitive payments. Investors utilizing the
Automatic Payment Plan should be aware that each payment constitutes a
redemption for tax purposes.
EXCHANGES
Shares of the Fund may be exchanged, without administrative fees, for shares of
any Gradison-McDonald funds and for shares of certain Federal and Federal/Ohio
tax-free or municipal income money market funds. You may request exchanges by
telephoning or writing the Fund. Before making an exchange, you should read the
prospectus of the fund in which you desire to invest which is available upon
request. An exchange may not be made from the Fund to the fund in which you
desire to invest unless the shares of such fund are registered for sale in the
state in which you reside. Exchanges of Fund shares for shares of funds sold
subject to a sales charge will be subject to such sales charge, except to the
extent that a sales charge has previously been paid in connection with the
shares or the shareholder is exempt from the sales charge. The terms of the
exchange feature are subject to change and the exchange feature is subject to
termination, both upon 60 days' written notice, except that no notice shall be
required under certain circumstances provided for by rules of the Securities
and Exchange Commission.
MANAGEMENT OF THE FUND
The Trust's Board of Trustees is responsible for the direction and supervision
of the Fund's operations. Subject to the authority of the Board of Trustees,
McDonald is responsible for providing advice and guidance with respect to the
Fund and for managing, either directly or through others, the Fund's
investments, and provides its employees to act as the officers of the Fund who
are responsible for the overall management of the Fund. McDonald, a wholly
owned subsidiary of McDonald & Company Investments, Inc., McDonald Investment
Center, 800 Superior Avenue, Cleveland, Ohio 44114, is an investment adviser
and a securities broker-dealer. McDonald, including Gradison, has served as an
investment adviser to investment companies since 1976.
The Fund pays the Adviser a fee of 1.00% of the first $100 million of the
Fund's average daily net assets, .90% of the next $150 million, .80% of the
next $250 million and .75% of net assets in excess of $500 million for acting
as its investment adviser. McDonald has engaged Blairlogie as Portfolio Manager
for the Fund pursuant to a Portfolio Management Agreement, and McDonald
compensates Blairlogie from its advisory fee at the rate of .80% of the first
$25 million of average daily net assets, .70% of the next $25 million, .60% of
the next $50 million, .50% of the next $150 million, and .40% of assets in
excess of $250 million. Under the Portfolio Management Agreement, the Portfolio
Manager has full investment discretion and makes all determinations respecting
the purchase and sale of the Fund's securities and other investments.
James Smith is primarily responsible for the day-to-day portfolio management of
the Fund. Mr. Smith is the Chief Investment Officer of Blairlogie and is
responsible for managing an investment team of seven professionals who, in
turn, specialize in selection of stocks within Europe, Asia, the Americas and
in currency and derivatives. Mr. Smith has been Director and Chief Investment
Officer of Blairlogie since its inception in November 1992. He previously
served as a senior portfolio manager at Murray Johnstone in Glasgow, Scotland
(from October 1989 to November 1992), where he was responsible for
international investment management for North American clients and at Schroder
Investment Management in London. Mr. Smith
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received his bachelor's degree in Economics from London University and his
M.B.A. from Edinburgh University. He is an Associate of the Institute of
Investment Management and Research.
Blairlogie manages the Blairlogie Emerging Markets Fund and the Blairlogie
International Active Fund. Blairlogie is a Scottish investment management firm,
organized as a limited partnership. Blairlogie is the successor investment
adviser to Blairlogie Capital Management Ltd., an indirect subsidiary of
Pacific Mutual Life Insurance Company ("PFAMCo"). Blairlogie is organized as a
U.K. limited partnership with two general partners and one limited partner. The
general partners are PIMCO Advisors ("PIMCO") which serves as the supervisory
partner, and Blairlogie Holdings Limited, a wholly owned corporate subsidiary
of PIMCO Advisors which serves as the managing partner. The limited partner is
Blairlogie Partners L.P., a limited partnership, the general partner of which
is PFAMCo, and the limited partners of which are the principal executive
officers of Blairlogie Capital Management. Blairlogie Partners L.P. has agreed
that PIMCO will acquire one-fifth of its 25% interest annually, beginning
December 31, 1997. Blairlogie Capital Management Ltd., the predecessor
investment adviser to Blairlogie, commenced operations in 1992. Accounts
managed by Blairlogie had combined assets as of September 30, 1995, in excess
of $500 million. Blairlogie's address is 4th Floor, 125 Princes Street,
Edinburgh EH2 4AD, Scotland. Blairlogie is registered as an investment adviser
with the Securities and Exchange Commission of the United States and the
Investment Management Regulatory Organization of the United Kingdom. PFAMCo and
its affiliates own a substantial interest in PIMCO and indirectly hold a major
interest in PIMCO Partners, G.P., the general partner of PIMCO.
Gradison acts as the Fund's transfer agent, dividend disbursing agent, and
accounting services provider. For providing such services, Gradison receives
an annual fee of $19.25 per non-zero balance shareholder account plus
out-of-pocket costs for acting as transfer agent and dividend disbursing agent
and an accounting services fee of .045% of the first $100 million of average
daily net assets, .030% of the next $100 million of average daily net assets
and .015% of average daily net assets in excess of $200 million, with a minimum
fee of $60,000 per year. Gradison's address is 580 Walnut Street,
Cincinnati, Ohio 45202.
All expenses not specifically assumed by the Adviser, the Portfolio Manager,
Distributor, or transfer agent and incurred in the operation of the Fund are
borne by the Fund. These expenses include expenses for the cost of preparing
and printing prospectuses, periodic reports and other documents furnished to
shareholders and regulatory authorities; registration, filing and similar fees;
legal expenses, auditing expenses; taxes and other fees; brokers' commissions
chargeable to the Fund in connection with securities transactions; expenses of
Trustees who are not affiliated with the Adviser; charges and expenses of any
transfer and dividend disbursing agent, registrar, custodian or depository
appointed by the Fund; expenses of shareholders' and Trustees' meetings; and
fees and other expenses incurred by the Fund in connection with its membership
in any organization. The Fund reimburses the Adviser for all costs, direct and
indirect, which are fairly allocable to services performed by the Adviser's
employees for which the Fund is responsible.
McDonald may, from time to time, agree to waive the receipt of management fees
from the Fund and/or reimburse the Fund for other expenses in order to limit
the Fund's expenses to a specified percentage of average net assets. Waiver and
reimbursement arrangements, which may be terminated at any time after August 1,
1996, without notice, will increase the Fund's return. If McDonald discontinues
a waiver or reimbursement arrangement, the Fund's expenses will increase and
its return will be reduced. McDonald retains the ability to be repaid by the
Fund for fees waived and expenses reimbursed if expense ratios fall below the
specified limit prior to the end of the fiscal year. McDonald may waive
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or reimburse fees in a greater amount than is required by an applicable fee
waiver arrangement. Until August 1, 1996, McDonald has agreed to limit Fund
expenses to 2.00% of its net assets, excluding extraordinary items.
Under the terms of a distribution plan and agreement adopted pursuant to Rule
12b-1 under the 1940 Act, the Fund pays to McDonald as Distributor a service
fee at the annual rate of .25% of the average daily net assets of the Fund and
a distribution fee in the same additional amount for a total payment of .50%
annually. Such fees are calculated on a daily basis and paid to the Distributor
monthly. The service fee is paid as compensation to the Distributor for
providing personal services to shareholders of the Fund, including responding
to shareholder inquiries and providing information to shareholders about their
Fund accounts. The distribution fee is paid to the Distributor for general
distribution services and as compensation for selling shares of the Fund. The
Distributor may use the fees to make payments to authorized dealers, including
Gradison and McDonald, for providing these services to Fund shareholders.
PERFORMANCE CALCULATIONS
From time to time the Fund's "total return" may be presented in advertisements.
THE TOTAL RETURN FIGURE IS AN HISTORICAL FIGURE AND IS NOT INTENDED TO INDICATE
FUTURE PERFORMANCE. The total return of the Fund refers to the average annual
compounded rate of return over specified time periods (which periods will be
stated in the advertisement) that would equate an initial amount of money
invested in the Fund at the beginning of a stated period to the ending
redeemable value of the investment. The calculations of total return assume the
payment of all dividends and other distributions in additional Fund shares.
The total return of the Fund may be presented in different ways. One
calculation will show the average annual compounded rate of return over an
indicated period that would equate an initial amount of money invested in the
Fund at the beginning of a stated period to the ending value of the investment.
Another calculation will show the aggregate total return over an indicated
period by dividing the change in value during the period by the initial amount
of the investment. Advertisements may also include figures (sometimes depicted
in graphs) reflecting the value of a specified amount of money invested in the
Fund over various time periods and comparison of the Fund's performance to the
performance of stock indices such as the S&P 500 or indices of foreign
securities. The Fund may also advertise performance rankings assigned to it by
organizations which evaluate mutual fund performance such as Lipper Analytical
Securities Corp. It may also advertise "ratings" assigned to it by
organizations such as Morningstar, Inc. The Fund's Annual Report to
Shareholders contains additional performance information and will be made
available without charge.
INDIVIDUAL RETIREMENT ACCOUNTS
Shares of the Fund may be purchased in conjunction with an Individual
Retirement Account ("IRA"), which permits exchange privileges with
Gradison-McDonald mutual funds (see "Exchanges") and which may also be used
with a Gradison or McDonald self-directed brokerage account. Detailed
information concerning IRA accounts is available from the Fund by calling the
phone numbers listed on the first page of this Prospectus.
GENERAL INFORMATION
The Fund is a series of the Gradison Growth Trust, which is an Ohio business
trust organized under the laws of the State of Ohio by a Declaration of Trust
dated May 31, 1983. Each share of the Fund has one vote and represents an equal
pro rata interest in the Fund. Shareholder inquiries should be directed to the
phone numbers or address of the Fund listed on the first page of this
Prospectus.
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<PAGE> 21
GRADISON GROWTH TRUST
Gradison-McDonald International Fund
- --------------------------------------------------------------------------------
STATEMENT OF ADDITIONAL
INFORMATION
- --------------------------------------------------------------------------------
For information, call:
579-5700 from Cincinnati, Ohio
Toll free (800) 869-5999 from outside Cincinnati
Information may also be obtained from the Trust at:
580 Walnut Street
Cincinnati, Ohio 45202
- --------------------------------------------------------------------------------
This Statement of Additional Information is not a prospectus and should be read
in conjunction with the Prospectus of the Fund, dated December 19, 1995, which
has been filed with the Securities and Exchange Commission. The Prospectus is
available upon request without charge from the Trust at the above address or by
calling the phone numbers provided above.
The date of this Statement of Additional Information is December 19, 1995.
<PAGE> 22
CONTENTS
==============================
RISK FACTORS AND INVESTMENT
TECHNIQUES...................... 3 Investment Objective, Policies and
Risk Factors; Foreign Securities;
Forward Foreign Currency
Transactions; Risks of Futures and
Forward Currency Transactions; Low
Capitalization Stocks
INVESTMENT RESTRICTIONS........ 19 Investment Restrictions and
Fundamental Policies
PURCHASE OF SHARES............. 22 Purchase and Redemptions
REDEMPTIONS OF SHARES.......... 22 Purchase and Redemptions
EXCHANGES...................... 23 Optional Shareholder Services
TAXES.......................... 24 Taxes
NET ASSET VALUE................ 30 Net Asset Value
PORTFOLIO TRANSACTIONS AND
BROKERAGE...................... 31
INVESTMENT ADVISER............. 33 Management of the Fund
TRUSTEES AND OFFICERS
OF THE TRUST................... 38
DESCRIPTION OF THE TRUST....... 41 General Information
INVESTMENT PERFORMANCE......... 44 Calculation of Performance Data
CUSTODIAN...................... 45
ACCOUNTANTS.................... 45
LEGAL COUNSEL.................. 45
FINANCIAL STATEMENTS........... After Page
SALES BROCHURE MATERIAL........ After Financial Statements
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<PAGE> 23
INTRODUCTION
This Statement of Additional Information is designed to elaborate upon the
discussion in the Prospectus. The investment objective and policies of the Fund
are described in the Prospectus. The more detailed information contained herein
is intended for investors who have read the Prospectus and are interested in a
more detailed explanation of certain aspects of the Fund.
RISK FACTORS AND INVESTMENT TECHNIQUES
U. S. GOVERNMENT SECURITIES
The Fund may invest in U.S. Government securities. U.S. Government securities
are obligations of, or guaranteed by, the U.S. Government, its agencies, or
instrumentalities. Treasury bills, notes, and bonds are direct obligations of
the U.S. Treasury, and they differ with respect to certain items such as
coupons, maturities, and dates of issue. Treasury bills have a maturity of one
year or less. Treasury notes have maturities of one to ten years and Treasury
bonds generally have a maturity of greater than ten years. Securities guaranteed
by the U.S. Government include federal agency obligations guaranteed as to
principal and interest by the U.S. Treasury (such as GNMA certificates
(described below) and Federal Housing Administration ("FHA") debentures). With
respect to these securities, the payment of principal and interest is
unconditionally guaranteed by the U.S. Government, and thus they are of the
highest possible credit quality. Such direct obligations or guaranteed
securities are subject to variations in market value due to fluctuations in
interest rates, but, if held to maturity, the U.S. Government is obligated to or
guarantees to pay them in full.
Securities issued by U.S. Government instrumentalities and certain federal
agencies are neither direct obligations of, nor guaranteed by, the U.S.
Treasury. However, they involve federal sponsorship in one way or another: some
are backed by specific types of collateral; some are supported by the issuer's
right to borrow from the U.S. Treasury; some are supported by the discretionary
authority of the U.S. Treasury to purchase certain obligations of the issuer;
and others are supported only by the credit of the issuing government agency or
instrumentality. These agencies and instrumentalities include, but are not
limited to Federal National Mortgage Association, Federal Home Loan Bank,
Federal Land Banks, Farmers Home Administration, Central Bank for Cooperatives,
Federal Intermediate Credit Banks, Federal Financing Bank, Farm Credit Banks,
and the Tennessee Valley Authority.
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<PAGE> 24
CORPORATE DEBT SECURITIES
The Fund may invest in short-term corporate debt securities. The investment
return of corporate debt securities reflects interest earnings and changes in
the market value of the security. The market value of a corporate debt
obligation may also be expected to rise and fall inversely with interest rates
generally. There also exists the risk that the issuers of the securities may not
be able to meet their obligations on interest or principal payments at the time
called for by an instrument.
PREFERRED STOCKS
The Fund may invest in preferred stocks. Preferred stock is a form of equity
ownership in a publicly held corporation. The dividend on a preferred stock is a
fixed payment. In these securities, the firm is not legally bound to pay the
dividend. Certain classes of preferred stock are convertible, meaning the
preferred stock is convertible into shares of common stock of the issuing
company. By holding convertible preferred stock, the Fund can receive a steady
stream of dividends and still have the option to convert it to common stock.
CONVERTIBLE BONDS
The Fund may invest in convertible bonds. A convertible bond can be exchanged
for a specified amount of common stock in the issuing firm. The amount of common
stock that can be acquired is determined by the conversion ratio of the
convertible bond. Convertible bonds offer the relatively safe income of a bond
as well as the opportunity for capital gains should the price of the stock
increase. The risk associated with convertible bonds is that they tend to be
subordinated debentures, which have a somewhat residual claim on the firm's
income and assets in the case of liquidation.
VARIABLE AND FLOATING RATE SECURITIES
The Fund may invest in variable and floating rate securities. Variable and
floating rate securities provide for a periodic adjustment in the interest paid
on the obligations. The terms of such obligations must provide that interest
rates are adjusted periodically based upon some appropriate interest rate
adjustment index as provided in the respective obligations. The adjustment
intervals may be regular, and range from daily up to annually, or may be event
based, such as based on a change in the prime rate.
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COMMERCIAL PAPER
The Fund may invest in commercial paper. Commercial paper represents short-term
unsecured promissory notes issued in bearer form by banks or bank holding
companies, corporations and finance companies. The commercial paper purchased by
the Fund consists of U.S. dollar-denominated obligations of domestic issuers,
or, foreign currencydenominated obligations of domestic or foreign issuers
which, at the time of investment, are (i) rated "P-1" or "P-2" by Moody's
Investor's Services, Inc. ("Moody's") or "A-1" or "A-2" or better by Standard &
Poor's Corporation ("S&P"), (ii) issued or guaranteed as to principal and
interest by issuers or guarantors having an existing debt security rating of "A"
or better by Moody's or "A" or better by S&P, or (iii) securities which, if not
rated, are, in the opinion of the Portfolio Manager, of an investment quality
comparable to rated commercial paper in which the Fund may invest. The rate of
return on commercial paper may be linked or indexed to the level of exchange
rates between the U.S. dollar and a foreign currency or currencies.
REPURCHASE AGREEMENTS
If the Fund acquires securities from a bank or broker-dealer, it may
simultaneously enter into a repurchase agreement with the seller wherein the
seller agrees at the time of sale to repurchase the security at a mutually
agreed-upon time and price. The term of such an agreement is generally quite
short, possibly overnight or for a few days, although it may extend over a
number of months (up to one year) from the date of delivery. The resale price is
in excess of the purchase price by an amount which reflects an agreed-upon
market rate of return, effective for the period of time the Fund is invested in
the security. This results in a fixed rate of return protected from market
fluctuations during the period of the agreement. This rate is not tied to the
coupon rate on the security subject to the repurchase agreement.
Under the Investment Company Act of 1940, as amended ("1940 Act"), repurchase
agreements are considered to be loans by the purchaser collateralized by the
underlying securities. The Portfolio Manager to the Fund monitors the value of
the underlying securities at the time the repurchase agreement is entered into
and at all times during the term of the agreement to ensure that its value
always equals or exceeds the agreed-upon repurchase price to be paid to the
Fund. The Portfolio Manager, in accordance with procedures established by the
Board of Trustees, also evaluates the creditworthiness and financial
responsibility of the banks and brokers or dealers with which the Fund enters
into repurchase agreements.
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The Fund may not enter into a repurchase agreement having more than seven days
remaining to maturity if, as a result, such agreements, together with any other
securities which are not readily marketable, would exceed 15% of the net assets
of the Fund. If the seller should become bankrupt or default on its obligations
to repurchase the securities, the Fund may experience delay or difficulties in
exercising its rights to the securities held as collateral and might incur a
loss if the value of the securities should decline. The Fund also might incur
disposition costs in connection with liquidating the securities.
BORROWING
The Fund may borrow for temporary extraordinary or emergency purposes subject to
the limits described in the Prospectus. This borrowing may be unsecured. The
1940 Act requires the Fund to maintain continuous asset coverage of 300% of the
amount borrowed. If the 300% asset coverage should decline as a result of market
fluctuations or other reasons, the Fund may be required to sell some of its
portfolio holdings within three days to reduce the debt and restore the 300%
asset coverage, even though it may be disadvantageous from an investment
standpoint to sell securities at that time. Borrowing may exaggerate the effect
on net asset value of any increase or decrease in the market value of the Fund.
The Fund may also be required to maintain minimum average balances in connection
with such borrowing or to pay a commitment or other fee to maintain a line of
credit; either of these requirements would increase the cost of borrowing over
the stated interest rate. The Fund may, in connection with permissible
borrowings, transfer as collateral securities owned by the Fund.
FIRM COMMITMENT AGREEMENTS AND WHEN-ISSUED SECURITIES
The Fund may enter firm commitment agreements for the purchase of securities at
an agreed-upon price on a specified future date. The Fund may purchase new
issues of securities on a "when-issued" basis. Such transactions may be entered
into, for example, when the Portfolio Manager anticipates a decline in the yield
of securities of a given issuer and is able to obtain a more advantageous yield
by committing currently to purchase securities to be issued or delivered later.
The Fund will not enter into such a transaction for the purpose of investment
leverage. Liability for the purchase price and all the rights and risks of
ownership of the securities accrue to the Fund at the time it becomes obligated
to purchase such securities, although
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<PAGE> 27
delivery and payment occur at a later date. Accordingly, if the market price of
the security should decline, the effect of the agreement would be to obligate
the Fund to purchase the security at a price above the current market price on
the date of delivery and payment. During the time the Fund is obligated to
purchase such securities it will maintain in a segregated account U.S.
Government securities, high-grade debt obligations, or cash or cash equivalents
of an aggregate current value sufficient to make payment for the securities.
ILLIQUID SECURITIES
The Fund may invest in illiquid securities. However, the Fund may not invest in
securities that are illiquid because they are subject to legal or contractual
restrictions on resale, in repurchase agreements maturing in more than seven
days, or other securities which are illiquid if, as a result of such investment,
more than 15% of the net assets of the Fund (taken at market value at the time
of such investment) would be invested in such securities.
With respect to private placements, which are generally subject to legal or
contractual restrictions on resale, if an exemption from registration under the
Securities Act of 1933 is not available, registration may be required to dispose
of the security. Where registration is required, the Fund may be obligated to
pay all or part of the registration expenses and a considerable period may
elapse between the time of the decision to sell and the time the Fund may be
permitted to sell a security under an effective registration statement. If,
during such a period, adverse market conditions were to develop, the Fund might
obtain a less favorable price than prevailed when it decided to sell. Restricted
securities will be priced at fair value as determined in good faith by the
Adviser under the supervision of the Board of Trustees.
These percentage restrictions set forth above do not limit purchases of
restricted securities that are eligible for sale to qualified institutional
purchasers pursuant to Rule 144A under the Securities Act of 1933, provided that
those securities have been determined to be liquid by the Board of Trustees of
the Fund or by the Portfolio Manager under Board-approved guidelines. Those
guidelines take into account the trading activity for such securities and the
availability of reliable pricing information, among other factors. If there is a
lack of trading interest in a particular Rule 144A security, the Fund's holding
of that security may be deemed to be illiquid.
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BANK OBLIGATIONS
The Fund may invest in bank obligations. Bank obligations in which the Fund may
invest include certificates of deposit, bankers' acceptances, and fixed time
deposits. The Fund may also hold funds on deposit with its custodian or
sub-custodian bank in an interest-bearing account for temporary purposes.
Certificates of deposit are negotiable certificates issued against funds
deposited in a commercial bank for a definite period of time and earning a
specified return. Bankers' acceptances are negotiable drafts or bills of
exchange, normally drawn by an importer or exporter to pay for specific
merchandise, which are "accepted" by a bank, meaning, in effect, that the bank
unconditionally agrees to pay the face value of the instrument on maturity.
Fixed time deposits are bank obligations payable at a stated maturity date and
bearing interest at a fixed rate. Fixed time deposits may be withdrawn on demand
by the investor, but may be subject to early withdrawal penalties which vary
depending upon market conditions and the remaining maturity of the obligation.
There are no contractual restrictions on the right to transfer a beneficial
interest in a fixed time deposit to a third party, although there is no market
for such deposits. The Fund will not invest in fixed time deposits which are (i)
not subject to prepayment or (ii) which provide for withdrawal penalties upon
prepayment (other than overnight deposits) if, in the aggregate, more than 15%
of its assets would be invested in such deposits, repurchase agreements maturing
in more than seven days and other illiquid assets.
The Fund limits its investments in United States bank obligations to obligations
of United States banks (including foreign branches) which have more than $1
billion in total assets at the time of investment and are members of the Federal
Reserve System or are examined by the Comptroller of the Currency or whose
deposits are insured by the Federal Deposit Insurance Corporation. The Fund may
also invest in certificates of deposit and other obligations of savings and loan
associations (federally or state chartered and federally insured) having total
assets in excess of $1 billion.
The Fund limits its investments in foreign bank obligations to United States
dollar- or additionally, foreign currency-denominated obligations of foreign
banks (including United States branches of foreign banks) which at the time of
investment (i) have more than $10 billion, or the equivalent in other
currencies, in total assets; (ii) in terms of assets are among the 75 largest
foreign banks in the world; (iii) have branches, or agencies (limited purpose
offices which do not
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offer all banking services) in the United States; and (iv) in the opinion of the
Portfolio Manager, are of an investment quality comparable to obligations of
U.S. banks in which the Fund may invest. Subject to the Fund's limitation on
concentration of no more than 25% of its assets in the securities of issuers in
a particular industry, there is no limitation on the amount of the Fund's assets
which may be invested in obligations of foreign banks which meet the conditions
set forth herein.
Obligations of foreign banks involve somewhat different investment risks than
those affecting obligations of U.S. banks, including the possibilities that
their liquidity could be impaired because of future political and economic
developments; that their obligations may be less marketable than comparable
obligations of U.S. banks; that a foreign jurisdiction might impose withholding
taxes on interest income payable on those obligations; that foreign deposits may
be seized or nationalized; that foreign governmental restrictions, such as
exchange controls, may be adopted which might adversely affect the payment of
principal and interest on those obligations; and that the selection of those
obligations may be more difficult because there may be less publicly available
information concerning foreign banks or the accounting, auditing and financial
reporting standards, practices and requirements applicable to foreign banks may
differ from those applicable to U.S. banks. Foreign banks are not generally
subject to examination by any U.S. Government agency or instrumentality.
FUTURES AND CURRENCY STRATEGIES
GENERAL
The Fund is permitted by its investment restrictions to purchase and sell
interest rate futures contracts, stock index futures contracts, other financial
futures contracts, and options thereon, and forward currency contracts. The Fund
is also permitted by its investment restrictions to purchase and sell options on
securities, indices and currencies. However, the Fund has no present intention
of purchasing or selling any of these instruments other than stock index futures
contracts and forward currency contracts. The Fund will supplement its
Prospectus or this Statement of Additional Information if the Fund intends to
purchase or sell any of these other instruments.
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SPECIAL RISKS OF FUTURES AND CURRENCY STRATEGIES
The use of futures contracts and forward currency contracts involves special
considerations and risks, as described below. Risks pertaining to particular
instruments are described in the sections that follow.
(1) Successful use of most of these instruments depends upon the Portfolio
Manager's ability to predict movements of the overall securities and currency
markets, which requires different skills than predicting changes in the prices
of individual securities. While the Portfolio Manager is experienced in the use
of these instruments, there can be no assurance that any particular strategy
adopted will succeed.
(2) There might be imperfect correlation, or even no correlation, between
price movements of an instrument and price movements of the investments being
hedged. For example, if the value of an instrument used in a short hedge
increased by less than the decline in value of the hedged investment, the hedge
would not be fully successful. Such a lack of correlation might occur due to
factors unrelated to the value of the investments being hedged, such as
speculative or other pressures on the markets in which the hedging instrument is
traded. The effectiveness of hedges using hedging instruments on indices will
depend on the degree of correlation between price movements in the index and
price movements in the investments being hedged.
(3) Hedging strategies, if successful, can reduce risk of loss by wholly or
partially offsetting the negative effect of unfavorable price movements in the
investments being hedged. However, hedging strategies can also reduce
opportunity for gain by offsetting the positive effect of favorable price
movements in the hedged investments. For example, if the Fund entered into a
short hedge because the Portfolio Manager projected a decline in the price of a
security in the Fund's portfolio, and the price of that security increased
instead, the gain from that increase might be wholly or partially offset by a
decline in the price of the hedging instrument. Moreover, if the price of the
hedging instrument declined by more than the increase in the price of the
security, the Fund could suffer a loss. In either such case, the Fund would have
been in a better position had it not hedged at all.
(4) As described below, the Fund might be required to maintain assets as
"cover," maintain segregated accounts or make margin payments when it takes
positions in futures and forward contracts. If the Fund were unable to close out
its positions in such instruments, it might be required to continue to maintain
such assets or accounts or make such payments until the position expired or
matured. The requirements might
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impair the Fund's ability to sell a portfolio security or make an investment at
a time when it would otherwise be favorable to do so, or require that the Fund
sell a portfolio security at a disadvantageous time. The Fund's ability to close
out a position in an instrument prior to expiration or maturity depends on the
existence of a liquid secondary market or, in the absence of such a market, the
ability and willingness of the other party to the transaction ("contra party")
to enter into a transaction closing out the position. Therefore, there is no
assurance that any position can be closed out at a time and price that is
favorable to the Fund.
(5) Stock index futures contracts may be traded on foreign exchanges. Such
transactions may not be regulated as effectively as similar transactions in the
United States; may not involve a clearing mechanism and related guarantees; and
are subject to the risk of governmental actions affecting trading in, or the
prices of, foreign securities. The value of such positions also could be
adversely affected by (a) other complex foreign political, legal and economic
factors, (b) lesser availability than in the United States of data on which to
make trading decisions, (c) delays in the Fund's ability to act upon economic
events occurring in foreign markets during non-business hours in the United
States, (d) the imposition of different exercise and settlement terms and
procedures on margin requirements than in the United States and (e) lesser
trading volume.
STOCK INDEX FUTURES CONTRACTS
The Fund may purchase and sell stock index futures contracts (1) in order to
attempt to reduce the overall investment risk in its portfolio or (2) to enhance
yield. For example, the Fund may purchase stock index futures contracts, in lieu
of investing in individual stocks, in order to maintain liquidity, because the
Portfolio Manager has not yet selected the individual securities in which to
invest, or because the stock index futures contract presents a more favorable
investment than investment in individual securities. The Fund only will enter
into futures contracts that are standardized and traded on a U.S. or foreign
exchange, board of trade or similar entity.
An index futures contract provides for the delivery, at a designated date, time
and place, of an amount of cash equal to a specified dollar amount times the
difference between the index value at the close of trading on the contract and
the price at which the futures contract is originally struck; no physical
delivery of the securities comprising the index is made. Brokerage fees are
incurred when a futures contract
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is bought or sold, and margin deposits must be maintained at all times the
futures contract is outstanding.
Futures contracts usually are closed out before the delivery date. Closing out
an open futures contract sale or purchase is effected by entering into an
offsetting futures contract purchase or sale, respectively, for the same
aggregate amount of the identical financial instrument or currency and the same
delivery date. If the offsetting purchase price is less than the original sale
price, the Fund realizes a gain; if it more, the Fund realizes a loss.
Conversely, if the offsetting sale price is more than the original purchase
price, the Fund realizes a gain; if it is less the Fund realizes a loss. The
transaction costs also must be included in these calculations. There can be no
assurance, however, that the Fund will be able to enter into an offsetting
transaction with respect to a particular futures contract at a particular time.
If the Fund is not able to enter into an offsetting transaction, the Fund will
continue to be required to maintain the margin deposits on the futures contract.
"Margin" is the amount of funds that must be deposited by the Fund in order to
initiate futures trading and to maintain the Fund's open positions in futures
contracts. A margin deposit made when the futures contract is entered into
("initial margin") is intended to assure the Fund's performance under the
futures contract. The margin required for a particular futures contract is set
by the exchange on which the futures contract is traded, and may be modified
significantly from time to time by the exchange during the term of the futures
contract.
Subsequent payments, called "variation margin," to and from the futures
commission merchant through which the Fund entered into the futures contract
will be made on a daily basis as the price of the underlying index fluctuates
making the futures contract more or less valuable, a process known as
marking-to-market.
The prices of futures contracts are volatile and are influenced, among other
things, by actual, and anticipated changes in individual security prices, which
in turn are affected by fiscal and monetary policies and national and
international political and economic events.
Because of the low margin deposits required, futures trading involves an
extremely high degree of leverage. As a result, a relatively small price
movement in a futures contract may result in immediate and substantial loss, as
well as gain, to the investor. Thus, a purchase or sale of a futures contract
may result in losses in excess of the amount invested in the futures contract.
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Most U.S. futures exchanges limit the amount of fluctuation permitted in futures
contract prices during a single trading day. The daily limit establishes the
maximum amount that the price of a futures contract may vary either up or down
from the previous day's settlement price at the end of a trading session. Once
the daily limit has been reached in a particular type of futures contract, no
trades may be made on that day at a price beyond that limit. The daily limit
governs only price movement during a particular trading day and, therefore, does
not limit potential losses because the limit may prevent the liquidation of
unfavorable positions. Futures contract prices occasionally have moved to the
daily limit for several consecutive trading days with little or no trading,
thereby preventing prompt liquidation of positions and subjecting some traders
to substantial losses.
If the Fund were unable to liquidate a futures position due to the absence of a
liquid secondary market or the imposition of price limits, it could incur
substantial losses. The Fund would continue to be subject to market risk with
respect to the position. In addition, the Fund would continue to be required to
make daily variation margin payments and might be required to maintain the
position being hedged by the futures contract or to maintain cash or securities
in a segregated account.
Certain characteristics of the futures market might increase the risk that
movements in the prices of futures contracts might not correlate perfectly with
movements in the prices of the investments being hedged. For example, all
participants in the futures markets are subject to daily variation margin calls
and might be compelled to liquidate futures positions whose prices are moving
unfavorably to avoid being subject to further calls. These liquidations could
increase price volatility of the instruments and distort the normal price
relationship between the futures and the investments being hedged. Also, because
initial margin deposit requirements in the futures market are less onerous than
margin requirements in the securities markets, there might be increased
participation by speculators in the futures markets. This participation also
might cause temporary price distortions. In addition, activities of large
traders in both the futures and securities markets involving arbitrage, "program
trading" and other investment strategies might result in temporary price
distortions.
FORWARD CURRENCY CONTRACTS
A forward contract is an obligation, generally arranged with a commercial bank
or other currency dealer, to purchase or sell a
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<PAGE> 34
currency against another currency at a future date and price as agreed upon by
the parties. The Fund either may accept or make delivery of the currency at the
maturity of the forward contract. The Fund may also, if its contra party agrees,
prior to maturity, enter into a closing transaction involving the purchase or
sale of an offsetting contract.
The Fund may engage in forward currency transactions in anticipation of or to
protect itself against fluctuations in exchange rates. The Fund might sell a
particular foreign currency forward, for example, when it holds securities
denominated in a foreign currency but anticipates, and seeks to be protected
against, a decline in the currency against the U.S. dollar. Similarly, the Fund
might sell the U.S. dollar forward when it holds securities denominated in U.S.
dollars but anticipates, and seeks to be protected against, a decline in the
U.S. dollar relative to other currencies. Further, the Fund might purchase a
currency forward to "lock in" the price of securities denominated in that
currency that it anticipates purchasing.
Forward contracts are traded in the interbank market conducted directly between
currency traders (usually large commercial banks) and their customers. A forward
contract generally has no deposit requirement, and no commissions are charged at
any stage for trades.
The Fund will enter into such forward contracts with major U.S. or foreign banks
and securities or currency dealers in accordance with guidelines approved by the
Trust's Board of Trustees.
The Fund may enter into forward contracts either with respect to specific
transactions or with respect to the Fund's portfolio positions. The precise
matching of the forward contract amounts and the value of specific securities
generally will not be possible because the future value of such securities in
foreign currencies will change as a consequence of market movements in the value
of those securities between the date the forward contract is entered into and
the date it matures. Accordingly, it may be necessary for the Fund to purchase
additional foreign currency on the spot (i.e., cash) market (and bear the
expense of such purchase) if the market value of the security is less than the
amount of foreign currency the Fund is obligated to deliver and if a decision is
made to sell the security and make delivery of the foreign currency. Conversely,
it may be necessary to sell on the spot market some of the foreign currency the
Fund is obligated to deliver. The projection of short-term currency market
movements is extremely difficult, and the successful execution of a short-term
hedging strategy is highly uncertain. Forward contracts
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involve the risk that anticipated currency movements will not be predicted
accurately, causing the Fund to sustain losses on these contracts and
transaction costs.
At or before the maturity of a forward contract requiring the Fund to sell a
currency, the Fund either may sell a portfolio security and use the sale
proceeds to make delivery of the currency or retain the security and offset its
contractual obligation to deliver the currency by purchasing a second contract
pursuant to which the Fund will obtain, on the maturity date, the same amount of
the currency that it is obligated to deliver. Similarly, the Fund may close out
a forward contract requiring it to purchase a specified currency by, if its
contra party agrees, entering into a second contract entitling it to sell the
same amount of the same currency on the maturity date of the first contract. The
Fund would realize a gain or loss as a result of entering into such an
offsetting forward contract under either circumstance to the extent the exchange
rate or rates between the currencies involved moved between the execution dates
of the first contract and the offsetting contract.
The cost to the Fund of engaging in forward contracts varies with factors such
as the currencies involved, the length of the contract period and the market
conditions then prevailing. Because forward contracts usually are entered into
on a principal basis, no fees or commissions are involved. The use of forward
contracts does not eliminate fluctuations in the prices of the underlying
securities the Fund owns or intends to acquire, but it does establish a rate of
exchange in advance. In addition, while forward contracts limit the risk of loss
due to a decline in the value of the hedged currencies, they also limit any
potential gain that might result should the value of the currencies increase.
The Fund may use forward contracts to hedge against movements in the values of
the foreign currencies in which the Fund's securities are denominated. Such
currency hedges can protect against price movements in a security that the Fund
owns or intends to acquire that are attributable to changes in the value of the
currency in which it is denominated. Such hedges do not, however, protect
against price movements in the securities that are attributable to other causes.
The Fund might seek to hedge against changes in the value of a particular
currency when no forward contract involving that currency is available or one of
such contracts is more expensive than certain other contracts. In such cases,
the Fund may hedge against price movements in that currency by entering into a
contract on another
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<PAGE> 36
currency or basket of currencies, the values of which the Portfolio Manager
believes will have a positive correlation to the value of the currency being
hedged. The risk that movements in the price of the contract will not correlate
perfectly with movements in the price of the currency being hedged is magnified
when this strategy is used.
The value of forward contracts depends on the value of the underlying currency
relative to the U.S. dollar. Because foreign currency transactions occurring in
the interbank market might involve substantially larger amounts than those
involved in the use of forward contracts, the Fund could be disadvantaged by
dealing in the odd lot market (generally consisting of transactions of less than
$1 million) for the underlying foreign currencies at prices that are less
favorable than for round lots.
There is no systematic reporting of last sale information for foreign currencies
or any regulatory requirements that quotations available through dealers or
other market sources be firm or revised on a timely basis. Quotation information
generally is representative of very large transactions in the interbank market
and thus might not reflect odd-lot transactions where rates might be less
favorable. The interbank market in foreign currencies is a global,
round-the-clock market. To the extent the U.S. markets are closed while the
markets for the underlying currencies remain open, significant price and rate
movements might take place in the underlying markets that cannot be reflected in
the U.S. markets until they reopen.
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Settlement of forward contracts might be required to take place within the
country issuing the underlying currency. Thus, the Fund might be required to
accept or make delivery of the underlying foreign currency in accordance with
any U.S. or foreign regulations regarding the maintenance of foreign banking
arrangements by U.S. residents and might be required to pay any fees, taxes and
charges associated with such delivery assessed in the issuing country.
COVER
Transactions using forward contracts and futures contracts expose the Fund to an
obligation to another party. The Fund will not enter into any such transactions
unless it owns either (1) an offsetting ("covered") position in securities,
currencies, or other forward contracts or futures contracts, or (2) cash,
receivables and short-term debt securities with a value sufficient at all times
to cover its potential obligations not covered as provided in (1) above. The
Fund will comply with Securities and Exchange Commission guidelines regarding
cover for these instruments and, if the guidelines so require, set aside cash,
U.S. government securities or other liquid, high-grade debt securities in a
segregated account with its custodian in the prescribed amount.
Assets used as cover or held in a segregated account cannot be sold while the
position in the corresponding forward contract or futures contract is open,
unless they are replaced with other appropriate assets. If a large portion of
the Fund's assets are used for cover or segregated accounts, it could affect
portfolio management or the Fund's ability to meet redemption requests or other
current obligations.
ADDITIONAL INFORMATION ABOUT FOREIGN SECURITIES
There is generally less publicly available information about foreign companies
comparable to reports and ratings that are published about companies in the
United States. Foreign companies are also generally not subject to uniform
accounting and auditing and financial reporting standards, practices, and
requirements comparable to those applicable to U.S. companies.
It is contemplated that most foreign securities will be purchased in
over-the-counter markets or on stock exchanges located in the countries in which
the respective principal offices of the issuers of the various securities are
located, if that is the best available market. The Fund will not invest in
securities sold in foreign over-the-counter markets unless the dealers effecting
such transactions have a minimum net worth of $20 million or more. Stock markets
in many foreign countries are
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not as developed or efficient as those in the United States. While growing in
volume, they usually have substantially less volume than the New York Stock
Exchange, and securities of some foreign companies are less liquid and more
volatile than securities of comparable U.S. companies. Similarly, volume and
liquidity in most foreign bond markets is less than in the United States and at
times, volatility of price can be greater than in the United States. Fixed
commissions on foreign stock exchanges are generally higher than negotiated
commissions on U.S. exchanges, although the Fund will endeavor to achieve the
most favorable net results on its portfolio transactions. There is generally
less government supervision and regulation of stock exchanges, brokers, and
listed companies than in the United States.
With respect to certain foreign countries, there is the possibility of adverse
changes in investment or exchange control regulations, nationalization,
expropriation, or confiscatory taxation, limitations on the removal of funds or
other assets of the Fund, political or social instability, or diplomatic
developments which could affect United States investments in those countries.
Moreover, individual foreign economies may differ favorably or unfavorably from
the United States economy in such respects as growth of gross national product,
rate of inflation, capital reinvestment, resource self-sufficiency, and balance
of payments position.
The investment by the Fund in emerging market countries presents risks in
addition to those presented by investment in foreign issuers in general. A
number of emerging market countries restrict, to varying degrees, foreign
investment in stocks. Repatriation of investment income, capital, and the
proceeds of sales by foreign investors may require governmental registration
and/or approval in some emerging market countries. A number of the currencies of
developing countries have experienced significant declines against the U.S.
dollar in recent years and devaluation may occur subsequent to investments in
these currencies by the Fund. Many emerging market countries have experienced
substantial, and in some periods, extremely high rates of inflation for many
years. Inflation and rapid fluctuations in inflation rates have had and may
continue to have negative effects on the economies and securities markets of
certain emerging market countries.
Many of the emerging securities markets are relatively small, have low trading
volumes, suffer periods of relative illiquidity, and are characterized by
significant price volatility. There is a risk in emerging market countries that
a future economic or political crisis could lead to price controls, forced
mergers of companies, expropriation or confiscatory taxation, seizure,
nationalization, or creation of government monopolies, any of which may have a
detrimental effect on the Fund's investment.
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The income and gains from certain foreign portfolio securities may be subject to
foreign withholding taxes, thus reducing the net amount available for
distribution.
The U.S. Government has, from time to time in the past, imposed restrictions,
through taxation and otherwise, on foreign investments by U.S. investors such as
the Fund. If such restrictions should be reinstituted, it might become necessary
for the Fund to invest all, or substantially all, of its assets in U.S.
short-term securities. In such event, the Fund would review its investment
objective and investment policies to determine whether changes are appropriate.
WARRANTS
The Fund may invest in warrants; however, the Fund's investment in warrants
(other than warrants acquired by the Fund as part of a unit or attached to
securities at the time of purchase), valued to the lower of cost or market, may
not exceed 5% of the value of the Fund's net assets, of which not more than 2%
of the Fund's net assets may be invested in warrants not listed on a recognized
U.S. or foreign stock exchange. Warrants may be considered speculative in that
they have no voting rights, pay no dividends, and have no rights with respect to
the assets of the corporation issuing them. Warrants basically are options to
purchase equity securities at a specific price valid for a specific period of
time. They do not represent ownership of the securities, but only the right to
buy them. Warrants differ from call options in that warrants are issued by the
issuer of the security and may be purchased on their exercise, whereas, call
options may be written or issued by anyone. The prices of warrants do not
necessarily move parallel to the prices of the underlying securities.
INVESTMENT RESTRICTIONS
The Fund's investment objective as set forth under "Investment Objectives,
Policies and Risk Factors" in the Prospectus together with the investment
restrictions set forth below, unless otherwise indicated, are fundamental
policies of the Fund and may not be changed with respect to the Fund without the
approval of a majority of the outstanding voting shares of the Fund. Under these
restrictions, the Fund may not:
(i) invest in a security if, as a result of such investment, more than 25% of
its total assets (taken at market value at the time of such investment) would be
invested in the securities of issuers in any particular industry, except that
this restriction does not apply to securities issued or guaranteed by the U.S.
Government or its agencies or instrumentalities (or repurchase agreements with
respect thereto);
(ii) invest in a security if, with respect to 75% of its total assets, more than
5% of its total assets (taken at market value at the time of
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such investment) would be invested in the securities of any one issuer, except
that this restriction does not apply to securities issued or guaranteed by the
U.S. Government or its agencies or instrumentalities;
(iii) invest in a security if, with respect to 75% of its total assets, the
Fund would own more than 10% (taken at the time of such investment) of the
outstanding voting securities of any one issuer, except that this restriction
does not apply to securities issued or guaranteed by the U.S. Government or its
agencies or instrumentalities;
(iv) purchase or sell real estate, except that the Fund may purchase
securities secured by real estate or interests therein, or securities issued by
companies in the real estate industry or which invest in real estate or
interests therein;
(v) purchase or sell commodities or commodities contracts, (which, for the
purpose of this restriction, shall not include foreign currency or forward
foreign currency contracts), except that the Fund may purchase and sell interest
rate futures contracts, stock index futures contracts, futures contracts based
on other financial instruments or one or more groups of instruments, and on
options on such futures contracts, and options on securities indices and
currencies;
(vi) borrow money, or pledge, mortgage or hypothecate its assets, except that
the Fund may (a) as a temporary measure for extraordinary or emergency purposes
borrow from banks or enter into reverse repurchase agreements, but only if
immediately after each borrowing and continuing thereafter there is asset
coverage of 300% (while any borrowing of greater than 5% of its assets occurs,
the Fund will not purchase additional securities); (b) make deposits of initial
and variation margin and pledge its assets in connection with its purchases and
sales of options, futures, options on futures contracts and forward foreign
currency contracts and (c) purchase securities on a when-issued or delayed
delivery basis and pledge its assets in connection therewith;
(vii) issue senior securities, except as permitted under the Investment Company
Act of 1940;
(viii) lend funds or other assets, except that the Fund may, consistent with its
investment objective and policies: (a) invest in debt obligations, including
bonds, debentures, or other debt securities, bankers' acceptances and commercial
paper, (b) enter into repurchase agreements and reverse repurchase agreements;
and (c) lend its portfolio securities in an amount not to exceed 1/3 of the
value of its total assets;
(ix) act as an underwriter of securities of other issuers, except to the
extent that in connection with the disposition of portfolio
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<PAGE> 41
securities, it may be deemed to be an underwriter under the federal securities
laws;
(x) invest in oil, gas or other mineral exploration or development programs
(including oil, gas, or other mineral leases), except that the Fund may invest
in the securities of companies that invest in or sponsor those programs.
The Fund is also subject to the following restrictions and policies that are not
fundamental and may, therefore, be changed by the Board of Trustees (without
shareholder approval) relating to the investment of its assets and activities.
Unless otherwise indicated, the Fund may not:
(i) invest for the purpose of exercising control or management;
(ii) sell securities or property short, except short sales against the box;
(iii) purchase securities on margin, except for use of short-term credit
necessary for clearance or purchases and sales of Fund securities, and except
that the Fund may make certain deposits in connection with transactions in
options, futures and options on futures, and except that effecting short sales
will be deemed not to constitute a margin purchase for purposes of this
restriction;
(iv) invest in securities that are illiquid including repurchase agreements
maturing in more than seven days, if, as a result of such investment, more than
15% of the net assets of the Fund would be invested in such securities;
(v) purchase any security if, as a result, the Fund will then have more than
5% of its total assets invested in securities of companies (including
predecessor companies) that have been in continuous operation for less than
three years but this limitation shall not include special purpose trusts
organized by issuers that have been in business for more than five years;
(vi) purchase or retain securities of any issuer if any of the Fund's officers
or trustees, or any officer or director of the investment adviser or
sub-investment adviser of the Fund, individually owns more than 1/2 of 1% of the
outstanding securities of the issuer and together own beneficially more than 5%
of such issuer's securities;
(vii) invest in warrants (other than warrants acquired by the Fund as part of a
unit or attached to securities at the time of purchase) if, as a result, the
investment in warrants (valued to the lower of cost or market) would exceed 5%
of the value of the Fund's net assets, of which not more than 2% of the Fund's
net assets may be invested in warrants not listed on a recognized U.S. or
foreign stock exchange;
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(viii) invest an aggregate of more than 15% of the Fund's total assets in
securities subject to the restriction set forth in paragraph (iv) above and
securities which are restricted as to disposition. Except as may be required by
State regulations, Rule 144 A securities will not be considered subject to
restrictions on disposition.
(ix) invest in securities of another open-end investment company.
(x) invest in puts, calls, straddles, spreads, and any combination thereof,
if by reason thereof the value of its aggregate investment in such classes of
securities will exceed 5% of its total assets.
Unless otherwise indicated, as in the restriction for borrowing or hypothecating
assets of the Fund, for example, all percentage limitations listed above apply
to the Fund only at the time into which a transaction is entered. Accordingly,
if a percentage restriction is adhered to at the time of investment, a later
increase or decrease in the percentage which results from a relative change in
values or from a change in the Fund's net assets will not be considered a
violation.
The Fund does not presently intend to engage in options transactions, options on
futures transactions, securities lending activities, or reverse repurchase
agreements.
PURCHASE OF SHARES
The Fund reserves the right to impose a charge of $15 for any purchase check
returned to the Trust as uncollectible and to collect such fee by redeeming
shares of the Fund from such shareholder's account.
The Fund reserves the right to limit the amount of any purchase and to reject
any purchase order. Shares of the Fund are offered continuously; however, the
offering of shares of the Fund may be suspended at any time and resumed at any
time thereafter. The Trust intends to waive the initial and subsequent purchase
minimums for employees of McDonald & Company Securities, Inc. ("McDonald")
which, through its Gradison Division ("Gradison"), acts as the investment
adviser and distributor ("Adviser" and "Distributor").
REDEMPTION OF SHARES
The Trust may suspend the right of redemption or may delay payment (a) during
any period when the New York Stock Exchange is closed other than for customary
weekend and holiday closings, (b) when trading in
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markets normally utilized by the Trust is restricted, or an emergency exists
(determined in accordance with the rules and regulations of the Securities and
Exchange Commission) so that disposal of the securities held in the Fund or
determination of the net asset value of the Fund is not reasonably practicable,
or (c) for such other periods as the Securities and Exchange Commission by order
may permit for the protection of the Trust's shareholders.
The Fund transmits redemption proceeds only to shareholder names and addresses
on its records (or which it has otherwise verified), provides written
confirmation of all transactions initiated by telephone (either immediately or
by monthly statement, depending on the circumstances), and requires
identification from individuals picking up checks at its offices.
EXCHANGES
TELEPHONE EXCHANGES
You may request exchanges by telephoning the Fund at 579-5700 from Cincinnati,
or toll free (800) 869-5999 from outside Cincinnati. Such request should include
your name and account number and the number of shares or dollar amount of the
Fund to be exchanged. Telephone exchanges may be made only when the registration
of the two accounts will be identical.
The Fund transmits redemption proceeds only to shareholder names and addresses
on its records or which it has otherwise verified, provides written confirmation
of all transactions initiated by telephone either immediately or by monthly
statement, depending on the circumstances, requires identification from
individuals picking up checks at its offices, and may take other additional
steps to verify the identity of persons giving telephone instructions.
WRITTEN EXCHANGES
You may also exchange your shares of either Fund by written request directed to:
Gradison-McDonald Mutual Funds
580 Walnut Street
Cincinnati, Ohio 45202
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Such written request should include your name and account number and the number
of shares or dollar amount of the Fund to be exchanged. Unless otherwise
indicated, a new account established by written exchange will have the same
registration and selected options as your present account.
GENERAL EXCHANGE INFORMATION
An exchange involves a redemption of the shares of the Fund being exchanged and
the investment of the redemption proceeds into shares of the fund being
purchased. Both the redemption and investment will occur at the respective net
asset value per share (except in the case of purchases of mutual funds sold
subject to a sales load) next determined after receipt by the Fund of a proper
exchange request. For Federal income tax purposes, an exchange of shares is
considered to be a sale and, depending upon the circumstances, a short or
long-term gain or loss may be realized.
The Fund reserves the right to reject any exchange request. The exchange feature
may be terminated at any time upon 60 days' written notice. In the case of
excessive use of the exchange feature, the Fund, upon 30 days' written notice,
may make reasonable service charges (as specified in the notice) by redeeming
shares from such shareholder's account.
TAXES
The Fund intends to qualify as a regulated investment company ("RIC") under
Subchapter M of the Internal Revenue Code of 1986, as amended (the "Code"). By
so qualifying, the Fund will not be taxed on that part of its investment company
taxable income (consisting generally of net investment income, net short-term
capital gain and net gains from certain foreign currency transactions) and net
capital gain (the excess of net long-term capital gain over net short-term
capital loss) that is distributed to its shareholders. In order to qualify for
treatment as a RIC under the Code, the Fund must distribute to its shareholders
for each taxable year at least 90% of its investment company taxable income
("Distribution Requirement"), and must meet several additional requirements.
These requirements include the following: (1) the Fund must derive at least 90%
of its gross income each taxable year from dividends, interest, payments with
respect to securities loans, gains from the sale or other disposition of stock,
securities or foreign currencies, other income (including gains from
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<PAGE> 45
options, futures or forward contracts) derived with respect to its business of
investing in stock, securities or those currencies ("Income Requirement"); (2)
the Fund must derive less than 30% of its gross income each taxable year from
the sale or other disposition of certain assets held for less than three months,
namely (i) securities, (ii) options, futures, or forward contracts (other than
those on foreign currencies), and (iii) foreign currencies (or options, futures
and forward contracts on foreign currencies) that are not directly related to
the Fund's principal business of investing in securities (or options and futures
with respect to stocks or securities) ("Short-Short Limitation"); (3) at the
close of each quarter of the Fund's taxable year, at least 50% of the value of
its total assets must be represented by cash and cash items, U.S. government
securities and other securities, with these other securities limited, in respect
of any one issuer, to an amount that does not exceed 5% of the value of the
Fund's total assets and that does not represent more than 10% of the issuer's
outstanding voting securities; and (4) at the close of each quarter of the
Fund's taxable year, not more than 25% of the value of its total assets may be
invested in securities (other than U.S. government securities) of any one
issuer.
Distributions of any net capital gain are taxable to shareholders as long-term
capital gains, whether paid in cash or in additional shares of the Fund and
regardless of the length of time a shareholder has owned shares of the Fund.
These capital gain distributions are not eligible for the dividends-received
deduction for corporations.
Investors should be aware of the tax implications of purchasing shares shortly
before a record date for a dividend or capital gain distribution. To the extent
that the net asset value of the Fund at the time of purchase reflects
undistributed income or capital gains, or net unrealized appreciation of
securities held by the Fund, a subsequent distribution to the shareholder of
such amounts, although in effect constituting a return of his or her investment,
would be taxable as described above. Correspondingly, for Federal income tax
purposes, a shareholder's tax basis in his or her shares continues to be his or
her original cost, so that upon redemption of shares, capital gain or loss will
be realized in the amount of the difference between the redemption price and the
shareholder's original cost.
The Treasury Department is authorized to issue regulations to provide that
foreign currency gains that are not directly related to a RIC's principal
business of investing in stock or securities (or options and futures with
respect to stock or securities) may be excluded from the
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income which qualifies for purposes of the Income Requirement. To date, however,
no regulations have been issued.
The Fund will be subject to a nondeductible 4% excise tax ("Excise Tax") to the
extent it fails to distribute by the end of any calendar year substantially all
of its ordinary income for that year and any net realized capital gains for the
one-year period ending on October 31 of that year, plus certain other amounts.
Although dividends generally will be treated as distributed when paid, dividends
declared in October, November or December, payable to shareholders of record on
a specified date in such a month and paid in January of the following year, will
be treated as having been received by shareholders on December 31 of the year in
which the dividend was declared.
Redemption of shares of the Fund will be a taxable transaction for federal
income tax purposes. Redeeming shareholders will recognize a gain or loss in an
amount equal to the difference between their basis in such redeemed shares and
the amount received. If such shares are held as a capital asset, the gain or
loss will be a capital gain or loss and will generally be long-term if such
shareholders have held their shares for more than one year. Any loss realized
upon a taxable disposition of shares held for six months or less will be treated
as a long-term capital loss to the extent of any capital gain distributions
received with respect to such shares. An exchange of Fund shares for shares of
any Gradison-McDonald fund or certain other funds (see "Optional Shareholder
Services - Exchanges") generally will have similar tax consequences. In
addition, if a shareholder purchases Fund shares within 30 days after redeeming
other Fund shares at a loss, all or part of that loss will not be deductible and
instead will increase the basis of the newly purchased shares.
The Fund is required to withhold 31% of dividends, capital gain distributions
and redemption proceeds, with respect to dividends and distributions, paid to
individuals and certain other non-corporate shareholders who do not furnish to
the Fund their correct taxpayer identification number or who are otherwise
subject to backup withholding.
HEDGING TRANSACTIONS
Income from foreign currencies, and income from transactions in options, futures
and forward contracts derived by the Fund with respect to its business of
investing in stock, securities or foreign currencies, will qualify as
permissible income under the Income
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Requirement. However, income from the disposition of options and futures
contracts (other than those on foreign currencies) will be subject to the
Short-Short Limitation if they are held for less than three months. Income from
the disposition of foreign currencies, and options, futures and forward
contracts thereon, that are not directly related to the Fund's principal
business of investing in stock or securities (or options and futures with
respect thereto) also will be subject to the Short-Short Limitation if they are
held for less than three months. Many of the futures contracts and forward
contracts used by the Fund are "section 1256 contracts." Gains or losses on
section 1256 contracts (other than section 1256 contracts that are part of a
"mixed straddle" with respect to which the Fund has made an election not to have
the following rules apply) are generally considered 60% long-term and 40%
short-term capital gains or losses ("60/40"). Also, section 1256 contracts held
by the Fund at the end of each taxable year (and, for purposes of the Excise
Tax, on certain other dates prescribed by the Code) are "marked to market", with
the result that unrealized gains or losses are treated as though they were
realized, and the resulting gain or loss is treated as 60/40.
Generally, the hedging transactions undertaken by the Fund may result in
"straddles" for federal income tax purposes. Because only a few regulations
implementing the straddle rules have been promulgated, the tax consequences to
the Fund of transactions in options, futures and forward contracts are not
entirely clear. The straddle rules may affect the character of gains (or losses)
realized by the Fund. In addition, losses realized by the Fund on positions that
are part of a straddle may be deferred under the straddle rules, rather than
being taken into account in calculating the taxable income for the taxable year
in which such losses are realized. The transactions may increase the amount of
short-term capital gain realized by the Fund, which is taxed as ordinary income
when distributed to shareholders.
The Fund may make one or more of the elections available under the Code which
are applicable to straddles. If the Fund makes any of the elections, the amount,
character and timing of the recognition of gains or losses from the affected
straddle positions will be determined under rules that vary according to the
elections made. The rules applicable under certain of the elections operate to
accelerate the recognition of gains or losses from the affected straddle
positions.
Because application of the straddle rules may affect the character of gains or
losses, defer losses and/or accelerate the recognition of gains or losses from
the affected straddle positions, the amount which must be distributed to
shareholders, and which will be taxed to shareholders as ordinary income or
long-term capital gain, may be increased or decreased substantially as compared
to the Fund that did not engage in such hedging transactions.
OTHER TAXATION
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Gains or losses attributable to fluctuations in exchange rates which occur
between the time the Fund accrues income or other receivables or accrues
expenses or other liabilities denominated in a foreign currency and the time the
Fund actually collects such receivables or pays such liabilities generally are
treated as ordinary gain or loss. Similarly, on disposition of foreign
currencies and debt securities denominated in a foreign currency, and on
disposition of certain futures contracts, forward contracts and options, gains
or losses attributable to fluctuations in the value of the foreign currency
between the date of acquisition of the security or contract and the date of
disposition also are treated as ordinary gain or loss. These gains and losses,
referred to under the Code as "Section 988" gains or losses, may increase,
decrease, or eliminate the Fund's investment company taxable income to be
distributed to its shareholders. If "Section 988" losses exceed other investment
company taxable income during a taxable year, the Fund would not be able to make
any ordinary dividend distributions for that year or distributions during that
year made before the losses were realized would be characterized in whole or in
part as a return of capital or as a capital gain to shareholders, rather than as
an ordinary dividend.
The Fund may invest in the stock of foreign corporations which may be classified
as passive foreign investment companies ("PFICs"). In general, a foreign
corporation is classified as a PFIC for a taxable year if at least one-half of
its assets constitute investment-type assets or 75% or more of its gross income
is investment-type income. If the Fund receives a so-called "excess
distribution" with respect to PFIC stock, the Fund itself may be subject to tax
on a portion of the excess distribution, whether or not the corresponding income
is distributed by the Fund to shareholders. In general, under the PFIC rules, an
excess distribution is treated as having been realized ratably over the period
during which the Fund held the PFIC stock. The Fund itself will be subject to
tax on the portion, if any, of an excess distribution that is so allocated to
prior Fund taxable years and an interest factor will be added to the tax, as if
the tax had been payable in such prior taxable years. Certain distributions from
a PFIC as well as gain from the sale of PFIC stock are treated as excess
distributions. Excess distributions are characterized as ordinary income even
though, absent application of the PFIC rules, certain excess distributions might
have been classified as capital gain.
The Fund may be eligible to elect alternative tax treatment with respect to PFIC
stock. Under an election that currently is available in some circumstances, the
Fund generally would be required to include in its gross income its share of the
earnings and net capital gains of a PFIC on a current basis, regardless of
whether distributions are received from the PFIC in a given year. If this
election were made, the special rules, discussed above, relating to the taxation
of excess distributions would not apply.
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In addition, under proposed regulations another election would be available that
would involve marking-to-market the Fund's PFIC stock at the end of each taxable
year (and as otherwise prescribed in the Code), with the result that unrealized
gains in the PFIC stock would be treated as though they were realized. If this
election were made, tax at the Fund level under the PFIC rules would generally
be eliminated, but the Fund could, in limited circumstances, incur nondeductible
interest charges. The Fund's intention to qualify annually as a RIC may limit
its elections with respect to PFIC stock. Because the application of the PFIC
rules may affect, among other things, the character of gains, the amount of gain
or loss and the timing of the recognition of income with respect to PFIC stock,
as well as subject the Fund itself to tax on certain income from PFIC stock, the
amount that must be distributed to shareholders, and which will be taxed to
shareholders as ordinary income or long-term capital gain, may be increased or
decreased substantially as compared to a mutual fund that did not invest in PFIC
stock.
Income received by the Fund from sources within foreign countries may be subject
to withholding and other taxes imposed by such countries. Tax conventions
between certain countries and the United States may reduce or eliminate such
taxes. In addition, the Adviser may manage the Fund with the intention of
minimizing foreign taxation in cases where it is deemed prudent to do so. If
more than 50% of the value of the Fund's total assets at the close of its
taxable year consists of securities of foreign corporations, the Fund will be
eligible to, and may, elect to "pass-through" to its shareholders the amount of
foreign income and similar taxes paid by the Fund. If this election is made, a
shareholder will be required to include in gross income (in addition to taxable
dividends actually received) his or her pro rata share of the foreign taxes paid
by the Fund and will be entitled either to deduct (as an itemized deduction) his
or her pro rata share of the foreign taxes in computing his or her taxable
income or to use it (subject to limitations) as a foreign tax credit against his
or her Federal income tax liability. No deduction for foreign taxes may be
claimed by a shareholder who does not itemize deductions, and foreign taxes
generally are not deductible in computing alternative minimum taxable income.
Each shareholder will be notified within 60 days after the close of the Fund's
taxable year whether the foreign taxes paid by the Fund will "pass-through" for
that year.
Generally, a credit for foreign taxes is subject to the limitation that it may
not exceed the shareholder's U.S. tax attributable to his or her total foreign
source taxable income. For this purpose, if the pass-through election is made,
the source of the Fund's income will flow through to its shareholders. With
respect to the Fund, gains from the sale of securities will be treated as
derived from U.S. sources and certain currency fluctuation gains, including
fluctuation gains from foreign-currency-denominated debt securities, receivables
and payables
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will be treated as ordinary income derived from U.S. sources. The limitation on
the foreign tax credit is applied separately to foreign source passive income
(as defined for purposes of the foreign tax credit) and to certain other types
of income. Shareholders may be unable to claim a credit for the full amount of
their proportionate share of the foreign taxes paid by the Fund. The foreign tax
credit can be used to offset only 90% of the revised alternative minimum tax
imposed on corporations and individuals. The foregoing is only a general
description of the foreign tax credit. Because application of the credit depends
on the particular circumstances of each shareholder, shareholders are advised to
consult their own tax advisers.
The Federal income tax matters summarized above are subject to change by
legislation, administrative action and judicial decision. In addition,
shareholders may be subject to state and local taxes with respect to their
ownership of shares or distributions from the Trust. Foreign shareholders may be
subject to U.S. tax rules that differ significantly from those described above.
Shareholders should consult their tax adviser as to their personal tax
situation.
NET ASSET VALUE
The net asset value of the Fund is calculated once daily Monday through Friday
except on the following holidays: New Year's Day, Presidents' Day, Good Friday,
Memorial Day, Independence Day, Labor Day, Thanksgiving Day and Christmas Day.
The assets and liabilities of the Fund are determined in accordance with
generally accepted accounting principles and the applicable rules and
regulations of the Securities and Exchange Commission. Assets and liabilities
attributable to the Fund are allocated to the Fund. Assets and liabilities not
readily attributable to the Fund are allocated to the Fund in the Trust in a
manner and on a basis determined in good faith by the Trustees to be fair and
equitable.
When calculating the net asset value of the Fund, a security listed or traded on
an exchange is valued at its last sale price on that exchange, or if there were
no sales that day, the security is valued at the closing bid price. All other
portfolio securities for which over-the-counter market quotations are readily
available are valued at the latest bid price. When price quotations of futures
held by the Fund are readily available, those positions will be valued based
upon such quotations. Portfolio securities and other assets for which market
quotations are not readily available are valued at their fair value as
determined by management of the Fund and approved in good faith by the Board of
Trustees. Short-term securities with remaining maturities
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of less than 60 days are valued at amortized cost which approximates market
value.
PORTFOLIO TRANSACTIONS AND BROKERAGE
INVESTMENT DECISIONS
Investment decisions for the Fund and for the other investment advisory clients
of the Adviser and Portfolio Manager are made with a view to achieving their
respective investment objectives. Investment decisions are the product of many
factors in addition to basic suitability for the particular client involved
(including the Fund). Thus, a particular security may be bought or sold for
certain clients even though it could have been bought or sold for other clients
at the same time. Likewise, a particular security may be bought for one or more
clients when one or more clients are selling the security. In some instances,
one client may sell a particular security to another client. It also sometimes
happens that two or more clients simultaneously purchase or sell the same
security, in which event transactions that are close in time in such security
are, insofar as possible, averaged as to price and allocated between such
clients in a manner which in the Adviser's or Portfolio Manager's opinion is
equitable to each and in accordance with the amount being purchased or sold by
each. The various allocation methods used by the Adviser and Portfolio Manager,
and the results of such allocations, are subject to periodic review by the
Fund's Adviser and Board of Trustees. There may be circumstances when purchases
or sales of portfolio securities for one or more clients will have an adverse
effect on other clients.
BROKERAGE AND RESEARCH SERVICES
There is generally no stated commission in the case of fixed-income markets, but
the price paid by the Fund usually includes an undisclosed dealer commission or
markup. In underwritten offerings, the price paid by the Fund includes a
disclosed, fixed commission or discount retained by the underwriter or dealer.
Transactions on U.S. stock exchanges and other agency transactions involve the
payment by the Fund of negotiated brokerage commissions. Such commissions vary
among different brokers. Also, a particular brokerage may charge different
commissions according to such factors as the difficulty and size of the
transaction. Transactions in foreign securities generally involve the payment of
fixed brokerage commissions, which are generally higher than those in the United
States.
The Adviser or Portfolio Manager for the Fund places all orders for the purchase
and sale of portfolio securities, options and futures contracts for the Fund and
buys and sells such securities, options and futures for the Fund through a
number of brokers and dealers and futures commission merchants ("FCMs"). In so
doing, the Adviser or Portfolio Manager uses its best efforts to obtain for the
Fund the best
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<PAGE> 52
execution available, except to the extent it may be permitted to pay higher
brokerage commissions as described below. In seeking the best execution, the
Adviser or Portfolio Manager, having in mind the Fund's best interests,
considers all factors it deems relevant, including, by way of illustration,
price (including the applicable brokerage commission or dollar spread), the size
of the transaction, the nature of the market for the security, the amount of the
commission, the timing of the transaction taking into account market prices and
trends, the reputation, experience and financial stability of the broker,
dealer, or FCM involved and the quality of service rendered by the broker,
dealer, or FCM in other transactions.
It has for many years been a common practice in the investment advisory business
for advisers of investment companies and other institutional investors to
receive research services from brokers or dealers which execute portfolio
transactions for the clients of such advisers. Consistent with this practice,
the Adviser or the Portfolio Manager may receive research services from many
brokers or dealers with which the Adviser or Portfolio Manager places the Fund's
transactions. These services, which in some cases may also be purchased for
cash, include such matters as general economic and security market reviews,
industry and company reviews, evaluations of securities and recommendations as
to the purchase and sale of securities. Some of these services are of value to
the Adviser or Portfolio Manager in advising various of its clients (including
the Fund), although not all of these services are necessarily useful and of
value in managing the Fund. The management fee paid by the Fund is not reduced
because the Adviser or Portfolio Manager and its affiliates receive such
services.
As permitted by Section 28(e) of the Securities Exchange Act of 1934 (the "1934
Act"), the Adviser or the Portfolio Manager may cause the Fund to pay a broker
or dealer which provides "brokerage and research services" (as defined in the
1934 Act) to the Adviser or Portfolio Manager an amount of disclosed commission
for effecting a securities transaction for the Fund in excess of the commission
which another broker or dealer would have charged for effecting that
transaction.
PORTFOLIO TURNOVER
The Adviser or the Portfolio Manager may manage the Fund without regard
generally to restrictions on portfolio turnover, except those imposed on its
ability to engage in short-term trading by provisions of the Federal tax laws
(see "Taxation"). Trading in fixed-income securities does not generally involve
the payment of brokerage commissions, but does involve indirect transaction
costs. The higher the rate of portfolio turnover of the Fund, the higher these
transaction costs borne by the Fund generally will be.
The portfolio turnover rate of the Fund is calculated by dividing the value of
the lesser of purchases or sales of portfolio securities for
32
<PAGE> 53
the fiscal year by the monthly average of the value of portfolio securities
owned by the Fund during the fiscal year. In determining such portfolio
turnover, long-term U.S. Government securities are included. Short-term U.S.
Government securities and all other securities whose maturities at the time of
acquisition were one year or less are excluded. A 100% portfolio turnover rate
would occur, for example, if all of the securities in the portfolio (other than
short-term securities) were replaced once during the fiscal year. The portfolio
turnover rate for the Fund will vary from year to year, depending on market
conditions. It is anticipated that the annual rate of portfolio turnover will
not exceed 150%.
INVESTMENT ADVISER
The Adviser will manage the investment and reinvestment of the assets of the
Fund in accordance with the Fund's investment objective, policies and
restrictions, subject to the general supervision and control of the Fund's Board
of Trustees and pursuant to the terms of the Investment Advisory Agreement
between the Trust and Adviser. The Adviser may, and has, delegated this function
to the Portfolio Manager. In addition, the Adviser provides to the Fund at its
own expense the executive officers who are necessary for the management and
operations of the Fund.
ADVISORY AGREEMENT
The Investment Advisory Agreement dated February 28,1995, effective as to the
Fund on June 1, 1995, provides that the Adviser will manage the investments of
the Fund, subject to review by the Board of Trustees of the Trust. The Adviser
also bears the cost of salaries and related expenses of executive officers of
the Trust who are necessary for the management and operation of the Trust and
compensates the Trustees who are affiliated with the Adviser. In addition,
except as borne by the Trust pursuant to an effective plan under Rule 12b-1
under the 1940 Act, the Adviser bears the expenses related to distribution of
shares of the Fund, such as costs of preparing, printing and mailing sales
literature and other advertising materials, costs of furnishing prospectuses,
annual and semiannual reports of the Fund and other materials regarding
distributing shares of the Trust to potential investors.
All expenses not specifically assumed by the Adviser, the Transfer Agent, or the
Distributor and incurred in the operation of the Fund are borne by the Fund
pursuant to the Investment Advisory Agreement. Some of these expenses may be
paid by the Adviser subject to reimbursement
33
<PAGE> 54
by the Trust. These expenses include expenses for the cost of preparing and
printing registration statements, prospectuses, periodic reports and other
documents furnished to shareholders and regulatory authorities; such
distribution/service expenses as may be incurred pursuant to an effective plan
under Rule 12b- 1 under the Investment Company Act of 1940; registration, filing
and similar fees; legal expenses; auditing and accounting expenses; taxes and
other fees; brokers' commissions and issue or transfer taxes chargeable to the
Trust in connection with securities transactions; expenses of issue, sale,
redemption and repurchase of shares; the cost of share certificates, if any;
fees of Trustees who are not affiliated with the Adviser; charges and expenses
of any transfer and dividend disbursing agent, registrar, custodian or
depository appointed by the Fund; other expenses of the Fund, including expenses
of shareholders' and Trustees' meetings; and fees and other expenses incurred by
the Fund in connection with its membership in any organization. Expenses borne
by the Trust and attributable to a specific fund are allocated to that fund;
expenses that are not specifically attributable to the Fund are allocated to the
Fund in a manner and on a basis determined in good faith by the Adviser to be
fair and equitable (generally, on the basis of the respective net assets of the
Fund), subject to review by the Trustees. The Fund reimburses the Adviser for
all costs, direct and indirect, which are fairly allocable to services provided
by the Adviser's employees for which the Fund is responsible.
As compensation for its services under the Investment Advisory Agreement, the
Adviser receives from the Fund a monthly fee based upon the average value of the
daily net assets for the month of the Fund at an annual rate of 1.00% on the
first $100 million of assets, of .90% on the next $150 million of assets and
.80% on the next $250 million and .75% on any amounts in excess of $500 million
of assets. From the inception of the Fund May 31, 1995 through September 30,
1995, the Fund paid the Adviser $0 as investment advisory fees and would have
paid $16,591 if not for the Adviser's waiver of advisory fees.
The Adviser will reimburse the Trust for aggregate expenses of the Fund during
any fiscal year which exceed the limits prescribed by any state in which the
shares of the Fund are registered for sale. Currently, the most stringent limit
is 2 1/2% of average net assets up to $30 million, 2% on the next $70 million
and 1 1/2% on additional net assets. However, certain expenses such as brokerage
commissions, taxes, interest and items of an extraordinary nature are excluded
from such limitation.
34
<PAGE> 55
The Investment Advisory Agreement also provides that the Adviser, as a
registered broker-dealer, will distribute the shares of the Fund in states in
which it may be qualified to do so, upon request of the Trust. The Adviser
accepts orders for the purchase of such shares at net asset value only, and no
sales commission, fee or other charge is incurred by the investor other than
charges specified in the Fund's 12b-1 plan. The Adviser receives no compensation
for acting as the Trust's distributor except as may be provided pursuant to the
Distribution Plan of the Trust.
The Investment Advisory Agreement further provides that in the absence of
willful misfeasance, bad faith or gross negligence in the performance of its
duties thereunder, or reckless disregard of its obligations thereunder, the
Adviser is not liable to the Fund or any of its shareholders for any act or
omission by the Adviser. The Agreement in no way restricts the Adviser from
acting as an investment manager or adviser for others.
The Investment Advisory Agreement grants to the Trust the right to use the name
"Gradison" and "McDonald" as a part of its name, without charge, subject to
withdrawal of such right by the Adviser upon not less than 30 days' written
notice to the Trust and subject to the automatic termination of such right
within 30 days after the termination of the Investment Advisory Agreement for
any reason. The Investment Advisory Agreement does not impair the right of the
Adviser to use the name Gradison or McDonald in the name of or in connection
with any other business enterprise with which it is or may become associated.
The Investment Advisory Agreement continues in effect as to the Fund until
February 28, 1997, and, thereafter, from year to year if such continuance is
specifically approved at least annually by the vote of the holders of a majority
of the outstanding voting securities of the Fund or by the vote of a majority of
the Trust's Board of Trustees, and in either event by the vote cast in person of
a majority of the Trustees who are not "interested persons" of any party to the
Investment Advisory Agreement.
The Investment Advisory Agreement may be terminated at any time without penalty
upon 60 days' written notice by (i) the Board of Trustees, (ii) the vote of the
holders of a majority of the outstanding voting securities of the Fund or (iii)
the Adviser. The Investment Advisory Agreement will terminate automatically in
the event of its assignment by the Adviser. The Investment Advisory Agreement
may be amended at any time by the mutual consent of the parties thereto,
provided that
35
<PAGE> 56
such consent on the part of the Fund shall have been approved by the vote of the
holders of a majority of the outstanding voting securities of the Fund and by
the vote of a majority of the Board of Trustees, including the vote cast in
person by a majority of the Trustees who are not "interested persons" of any
party to the Investment Advisory Agreement.
INVESTMENT SUB-ADVISORY AGREEMENT
Pursuant to an agreement dated June 1, 1995, between the Adviser and Blairlogie,
Blairlogie will make investment decisions on behalf of the Fund and place all
orders for the purchase and sale of portfolio securities and all other
investments related to those investment decisions. Blairlogie will furnish all
necessary investment and management facilities required for it to execute its
duties as well as administrative facilities, including bookkeeping, clerical
personnel and equipment necessary for performance of its duties including
verification and oversight of he pricing of the Fund's portfolio. The agreement
provides that it: automatically terminates in the event of its assignment or in
the event that the Advisory Agreement between the Fund and the Adviser
terminates; and continues in effect for a period more than two years from the
date of its execution only so long as such continuance is approved at least
annually by the Board of Trustees or by vote of a majority of the outstanding
voting securities of the Fund, and may be terminated without penalty by the
Board of Trustees, the Investment Adviser, or by a vote of a majority of the
outstanding voting securities of the Fund on sixty days written notice to
Blairlogie.
DISTRIBUTION
The Fund has adopted a Distribution Plan (the "Plan") under Rule 12b-1 of the
Investment Company Act of 1940. Rule 12b-1 permits an investment company to
finance, directly or indirectly, activities primarily intended to result in the
sale of its shares only if it does so in accordance with the provisions of such
Rule. The purpose of the Plan is to increase sales of shares of the Fund to
enable the Fund to acquire and retain a sufficient level of assets to enable it
to operate at an efficient level. Higher levels of assets tend to result in
operating efficiencies with respect to the Fund's fixed costs and portfolio
management.
The Plan permits the Fund to incur expenses related to the distribution of its
shares, but only as specifically contemplated by the Plan. Under the Plan, the
Fund may incur distribution and service expenses up
36
<PAGE> 57
to an amount that does not exceed an annual rate of .50 of 1% of its average
daily net assets. Distribution expenses may be incurred by the Fund under the
Plan within the limitation described above for any activity primarily intended
to result in sale of Fund shares.
The Plan also specifically authorizes the payment of those operational expenses
enumerated as being incurred by the Trust pursuant to the Investment Advisory
Agreement, as described under the caption "Advisory Agreement" above, to the
extent that such payments might be considered to be primarily intended to result
in the sale of shares of the Fund. It further specifically authorizes the
payment of advisory fees pursuant to the Investment Advisory Agreement to the
extent that the Trust might be deemed to be indirectly financing the Adviser's
distribution activities through payment of advisory fees. The Board of Trustees
does not believe that the payment of such operational expenses by the Trust or
payment of the advisory fee constitute the direct or indirect financing of
activities primarily intended to result in the sale of shares of the Fund. Thus,
although such payments are authorized by the Plan as a protective measure, they
are not restricted by the .50 of 1% limitation included in the Plan.
The Plan (together with any agreements relating to implementation of the Plan)
continues in effect for a period of more than one year only so long as such
continuance is specifically approved at least annually by the vote of a majority
of the Board of Trustees, including the vote of a majority of the Independent
Trustees, cast in person at a meeting called for such purpose. The Plan may not
be amended to materially increase the amount of distribution expenses incurred
by the Fund without the approval of a majority of the outstanding voting
securities of the Fund, and all material amendments to the Plan must be approved
by a majority of the Board of Trustees and a majority of the Independent
Trustees by votes cast in person at a meeting called for the purpose of voting
on such amendment. The Plan may be terminated as to the Fund at any time by a
vote of a majority of the Independent Trustees or by a vote of the majority of
the outstanding voting securities of the Fund. Any agreement implementing the
Plan may be terminated at any time, without the payment of any penalty, by a
vote of a majority of the Independent Trustees or by a vote of a majority of the
outstanding voting securities of the Fund, on not more than 60 days' written
notice to the other party to the agreement, and any related agreement will
terminate automatically in the event of its assignment. The Plan requires that
the Board of Trustees receive at least quarterly written reports as to the
amounts expended during each quarter pursuant to the Plan and the purposes for
which such amounts were expended. While the Plan is in effect, the selection and
nomination of those Trustees who are not "interested persons" (as
37
<PAGE> 58
defined in the Investment Company Act of 1940) of the Trust shall be committed
to the discretion of the Independent Trustees then in office.
Pursuant to the Plan, the Trust has entered into a distribution agreement
("Agreement") with McDonald. This agreement provides that the Distributor will
receive compensation for rendering personal services to shareholders of the Fund
including providing shareholder liaison services such as responding to
shareholder inquiries and providing information to shareholders about their Fund
accounts at an annual rate of .25 of 1% of the average daily net assets of the
Fund and .25 of 1% of the value of the average daily net assets of the Fund for
rendering other distribution services to the Fund. The Agreement may be
terminated at any time, without penalty, by a vote of a majority of the
Independent Trustees of the Trust or by a vote of a majority of the outstanding
voting securities of the Fund. The Agreement is contingent on the continued
effectiveness of the Fund's Distribution Plan and automatically terminates in
the event of its assignment. From the inception of the Fund through September
30, 1995, the Fund paid McDonald $0 as distribution fees and would have paid
$8,296 if not for McDonald's waiver of fees.
TRANSFER AGENT AND ACCOUNTING SERVICES AGREEMENT
Pursuant to the Transfer Agent and Accounting Services Agreement, Gradison
provides transfer agent, dividend disbursing, and accounting services for the
Fund. Gradison responds to inquiries from shareholders, processes purchase and
redemption requests, maintains shareholder account records and provides
statements and confirmations to shareholders and maintains the Fund's books and
accounting records. From the inception of the Fund through September 30, 1995
the Fund paid McDonald $0 as transfer agent and accounting service fees and
would have paid $22,761 if not for McDonald's waiver of fees.
TRUSTEES AND OFFICERS OF THE TRUST
The Trustees and officers of the Trust, together with information as to their
principal occupations during the past five years and positions currently held
with Gradison-McDonald Cash Reserves Trust ("GMCR"), Gradison Custodian Trust
("GCT"), and Gradison-McDonald Municipal Custodian Trust ("GMMCT"), Gradison,
and McDonald, are listed below. All principal occupations have been held for at
least five years unless otherwise indicated. Positions held with Gradison were
formerly held with Gradison & Company Incorporated.
38
<PAGE> 59
*DONALD E. WESTON, 580 Walnut Street, Cincinnati, Ohio. Trustee and Chairman of
the Board; Chairman of Gradison and Director of McDonald & Company Investments,
Inc. (since October 1991). Director of Cincinnati Milacron Commercial Corp.
(financing arm of capital goods manufacturer) (since January 1993); Trustee and
Chairman of the Board of GMCR, GCT, and GMMCT.
DANIEL J. CASTELLINI, 312 Walnut Street, Cincinnati, Ohio. Trustee; Senior Vice
President/Finance and Administration of the E.W. Scripps Company
(communications); Director and Treasurer of Scripps Howard Broadcasting Company;
Trustee of GMCR, GCT, and GMMCT.
THEODORE H. EMMERICH, 1201 Edgecliff Place, Cincinnati, Ohio 45206. Trustee.
Retired; Until 1986, managing partner (Cincinnati office) Ernst & Young (Public
Accountants); Director of Carillon Fund, Inc.(investment company), American
Financial Group, Inc.(insurance), Citicasters, Inc. (broadcasting), Cincinnati
Milacron Commercial Corp.; Trustee of Carillon Investment Trust and Summit
Investment Trust(investment companies); Trustee of GMCR, GCT, and GMMCT.
RICHARD A. RANKIN, 1717 Dixie Highway, Suite 600, Fort Wright, Kentucky 41011.
Trustee. Partner, Rankin and Rankin (Public Accountants); Trustee of GMCR, GCT,
and GMMCT.
JEROME E. SCHNEE, 11558 Stablewatch Court, Cincinnati, Ohio 45249. Trustee.
Professor of Management, College of Business Administration, University of
Cincinnati; Director of National Sanitary Supply Co. and Roto Rooter, Inc.;
Trustee of GMCR, GCT, and GMMCT.
BRADLEY E. TURNER, 580 Walnut Street, Cincinnati, Ohio 45202. President.
Managing Director of McDonald; President of GMCR, GCT, and GMMCT.
WILLIAM J. LEUGERS, JR., 580 Walnut Street, Cincinnati, Ohio. Executive Vice
President. Portfolio Manager of the Gradison-McDonald Established and
Opportunity Value Funds.
JULIAN BALL, 800 Superior Avenue, Cleveland, Ohio. Executive Vice President.
Portfolio Manager of the Gradison-McDonald Growth and Income Fund; Vice
President of McDonald since July 1994; prior to that, Vice President of Duff &
Phelps Investment Management Company.
PAUL J. WESTON, 580 Walnut Street, Cincinnati, Ohio. Senior Vice President.
Executive Vice President of GMCR; Senior Vice President of GCT, and GMMCT;
Executive Vice President of Gradison. Mr. Weston is the brother of Donald E.
Weston.
39
<PAGE> 60
DANIEL R. SHICK, 580 Walnut Street, Cincinnati, Ohio. Vice President
(Gradison-McDonald Established Value and Opportunity Value Funds); Senior Vice
President of Gradison.
ALFRED M. BRUNNER, 580 Walnut Street, Cincinnati, Ohio. Vice President
(Gradison-McDonald Established Value and Opportunity Value Funds); Vice
President of Gradison.
PATRICIA J. JAMIESON, 800 Superior Avenue, Cleveland, Ohio 44114. Treasurer.
Treasurer and Chief Accounting Officer of McDonald; Treasurer of GMCR, GCT, and
GMMCT.
MARK A. FRIETCH, 580 Walnut Street, Cincinnati, Ohio. Assistant Treasurer.
Assistant Treasurer of GMCR, GCT, and GMMCT (since May 1995); Controller of
Gradison-McDonald mutual funds (since August 1992); prior to that Financial
Consultant and Assistant Controller of Union Central Life Insurance Company.
RICHARD M. WACHTERMAN, 580 Walnut Street, Cincinnati, Ohio 45202. Secretary.
Senior Vice President and General Counsel of Gradison.; Secretary of GMCR, GCT,
and GMMCT.
*Trustee who is interested and affiliated person, as defined by the Investment
Company Act of 1940, of the Trust and the Adviser by virtue of stock ownership
of the parent of the Adviser and employment by the Adviser.
Trustees and officers of the Trust who are affiliated with the Adviser receive
no remuneration from the Trust. Trustees who are not affiliated with the Adviser
receive compensation as determined by the Board of Trustees
40
<PAGE> 61
Trustee Compensation Table
<TABLE>
<CAPTION>
Total Compensation
From Trust and fund
complex (3 Trusts)
Aggregate Compensation paid to trustee for
From Trust for fiscal period calendar year
Name of Trustee ending 3/31/95 ending 12/31/94
- --------------- ---------------------------- -------------------
<S> <C> <C>
Theodore H. Emmerich $ 875 $ 18,604
Richard A. Rankin $ 625 $ 18,604
Jerome E. Schnee $ 875 $ 18,604
Daniel J. Castellini $ 6,083 $ 9,167
</TABLE>
The Trust's deferred compensation plans allow trustees to defer receipt of
trustees fees otherwise payable to them until a future date. Deferred amounts
are credited with interest at a rate of equal to the yield of the
Gradison-McDonald U. S. Government Reserves Fund. The Trust does not maintain
any other pension or retirement plans.
There are currently no amounts owing to any current trustee pursuant to the
deferred compensation plan. As of September 30, 1995, the amount of $12,086 was
payable by the Trust to the beneficiary of a former trustee who is deceased and
as of December 31, 1994, the amount of $30,413.10 was payable to that trustee by
the Trust and the fund complex.
DESCRIPTION OF THE TRUST
The Trust is a diversified, open-end investment company organized under the laws
of the State of Ohio by a Declaration of Trust dated May 31, 1983. The
Declaration of Trust provides for an unlimited number of full and fractional
shares of beneficial interest, without par value, of any series authorized by
the Board of Trustees. The Board of Trustees has authorized the issuance of
shares of four series, representing the Fund, the Gradison-McDonald Established
Value Fund, the Gradison-McDonald Opportunity Value Fund, and the
Gradison-McDonald Growth and Income Fund. Any additional series of shares must
be issued in compliance with the Investment Company Act of 1940 and must not
41
<PAGE> 62
constitute a security that is senior to the shares offered pursuant to the
Prospectuses. Each share of each series represents an equal, proportionate
interest in the related Fund with each other share of that series. All shares
are of the same class and are freely transferable. Upon issuance and sale in
accordance with the terms of the offering, each share will be fully paid and
nonassessable. Shares have no preemptive, subscription or conversion rights and
are redeemable as set forth under "Redemption of Shares."
Holders of shares of each series are entitled to one vote per share; however,
separate votes are taken by each series on matters specifically affecting the
related fund. Voting rights are not cumulative, which means that the holders of
more than 50% of the shares voting in any election of Trustees can elect all of
the Trustees of the Trust if they choose to do so, in which event the holders of
the remaining shares will be unable to elect a Trustee. Trustees were initially
elected by the shareholders at the first annual meeting of shareholders and at a
subsequent meeting of shareholders. Under the Declaration of Trust, no further
meetings of shareholders are required to be held for the purpose of electing
Trustees, unless less than a majority of Trustees holding office have been
elected by the shareholders. Shareholders' meetings will be held only when
required pursuant to the Declaration of Trust or the Investment Company Act of
1940, and when called by the Trust or shareholders pursuant to the Declaration
of Trust. Pursuant to the Declaration of Trust, shareholders of record of not
less than two-thirds of the outstanding shares of the Trust may remove a Trustee
through a declaration in writing or by vote cast in person or by proxy at a
meeting called for that purpose. The Trustees are required to call a meeting of
shareholders for the purpose of voting upon the question of removal of any
Trustee when requested in writing to do so by shareholders of record of not less
than 10 percent of the Trust's outstanding shares. Whenever the approval of a
majority of the outstanding shares of the Fund is required in connection with
shareholder approval of the Investment Advisory Agreement or the Distribution
Plan, or changes in the investment objective or the investment restrictions, a
"majority" shall mean the vote of (I) 67% or more of the outstanding shares of
the Fund present at a meeting, if the holders of more than 50% of the
outstanding shares of the Fund are present in person or by proxy, or (ii) more
than 50% of the outstanding shares of the Fund, whichever is the lesser.
The assets of the Trust received upon the issuance of the shares of a fund and
all income, earnings, profits and proceeds thereof, subject only to the rights
of creditors, are especially allocated to each such
42
<PAGE> 63
fund and constitute the underlying assets of each such fund. The underlying
assets of the fund are segregated on the books of account and are to be charged
with the liabilities in respect to each such fund and with a share of the
general liabilities of the Trust. In the event of the termination and
liquidation of the Trust, the holders of the shares of any series are entitled
to receive, as a class, the underlying assets of the related fund available for
distribution to shareholders.
The Trust is currently operating, and intends to continue to operate, in
compliance with the Ohio law relating to business trusts. Under Ohio law, the
shareholders of a complying business trust have no liability to third persons
for obligations of the Trust, which are to be satisfied solely from the Trust's
property. The Declaration of Trust provides that no Trustee, officer or agent of
the Trust shall be personally liable to any person for any action or failure to
act except (1) for his or her own bad faith, willful misfeasance, gross
negligence, or reckless disregard of his duties, (2) with respect to any matters
as to which he or she did not act in good faith and in a manner he reasonably
believed to be in, or not opposed to, the best interests of the Trust, or (3) in
the case of any criminal proceeding, with respect to any conduct which he or she
had reasonable cause to believe was unlawful.
43
<PAGE> 64
INVESTMENT PERFORMANCE
Total Return
Percentage Change:
Since Inception (non-annualized)
(5/31/95 - 9/30/95)
Fund -0.13%
The results of the Fund assume reinvestment of dividends and other
distributions. The performance results reflect historical performance and do not
ensure future results. The annualized return of the Fund for the period of time
set forth above was -.40%. This figure represents annualization of performance
for a very short period of time and does not reflect the actual performance for
the entire year. During the time period, the Fund's investment adviser waived
the receipt of certain fees from the Fund and paid certain other expenses
otherwise payable by the Fund. If not for the investment adviser's waiver of
these fees and payment of these Fund expenses, the Fund's unannualized total
return for the period ending September 30, 1995, would have been -0.60%, and the
annualized return for that period would have been -1.78%.
44
<PAGE> 65
CUSTODIAN
Chase Manhattan Bank N.A. ("Chase") serves as Custodian for assets of the Fund.
Pursuant to rules or other exemptions under the 1940 Act, the Trust may maintain
foreign securities and cash in the custody of certain eligible foreign banks and
securities depositories. There is a risk of possible losses through holding
securities in custodians and securities depositories in foreign countries.
Chase, together with certain of its foreign branches and agencies and foreign
banks and securities depositories acting as subcustodian to Chase will maintain
custody of the securities and other assets of foreign issuers. Under these
agreements, Chase has agreed to use reasonable care in the safekeeping of these
securities and to indemnify and hold harmless the Trust from and against any
loss which shall occur as a result of the failure of a foreign bank or
securities depository holding such securities to exercise reasonable care in the
safekeeping of such securities to the same extent as if the securities were held
in New York. Pursuant to requirements of the Securities and Exchange Commission,
Chase is required to use reasonable care in the selection of foreign
subcustodians, and to consider the financial strength of the foreign
subcustodian, its general reputation and standing in the country in which it is
located, its ability to provide efficiently the custodial services required, and
the relative costs for the services to be rendered by it. Each of the contracts
with foreign subcustodians to be used for the Fund has been approved by the
Board of Trustees, and the Board of Trustees will review annually the
continuance of foreign custodial arrangements. No assurance can be given that
expropriation, nationalization, freezes, or confiscation of assets that would
impact assets of the Trust will not occur, and shareholders bear the risk of
losses arising from these or other events.
ACCOUNTANTS
Arthur Andersen LLP, 425 Walnut Street, Cincinnati, Ohio 45202, is the
independent public accountant for the Trust.
LEGAL COUNSEL
Kirkpatrick & Lockhart LLP acts as legal counsel to the Trust.
MISCELLANEOUS
Blairlogie currently manages in excess of $500 million of international assets.
As of November 15, 1995, McDonald & Company Securities, Inc. 800 Superior
Avenue, Cleveland, Ohio 44114, owns 14.10% of the outstanding shares of the
Fund.
45
<PAGE> 66
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER PREFERRED STOCKS - 3.59% VALUE
OF SHARES
BRAZIL - 3.59%
<S> <C>
11,000 Aracruz Celulose SA $ 22,737
2,650,000 Banco Bradesco SA 25,442
100,000 Brasmotor SA 25,392
390,000 Companhia Vale Do Rio Doce 65,269
330,000 Elerobras Centrais Eletricas 101,107
1,600,000 (1)Paranapanema 24,175
450,000 Petroleo Brasileiro SA (Petrobras) 46,980
23,600,000 Usinas Siderugicas de Minas Gerais 26,001
--------
TOTAL PREFERRED STOCKS
(COST = $356,584) $337,103
========
</TABLE>
<TABLE>
<CAPTION>
NUMBER COMMON STOCKS - 96.41% VALUE
OF SHARES
ARGENTINA - 0.95%
<S> <C> <C>
2,750 Astra Cia Argentina de Petroleo SA $ 4,703
1,050 Banco de Galicia y Buenos Aires SA 4,726
650 Banco Frances del Rio de la Plata SA 4,648
1,400 Central Puerto SA 4,551
1,500 Compania Naviera Perez
Companc SAADR 13,142
600 (1)IRSA(Inversiones y
Representaciones SA) GDR 14,400
750 Molinos Rio de la Plata SA 4,538
700 Telefonica de Argentina ADR 16,713
1,200 YPF Sociedad Anonima ADR 21,600
---------
89,021
---------
</TABLE>
<TABLE>
<CAPTION>
AUSTRALIA - 0.75%
<S> <C> <C>
1,800 Amcor Limited 13,477
1,000 Broken Hill Proprietary Co. Ltd. 13,767
2,800 Comalco Limited 13,843
2,200 Western Mining Corp Holding 14,380
3,600 Westpac Banking Corp. 14,564
---------
70,031
---------
</TABLE>
<TABLE>
<CAPTION>
NUMBER COMMON STOCKS (CONTINUED) VALUE
OF SHARES
BELGIUM - 1.36%
<S> <C> <C>
166 Electrabel SA $ 36,516
90 Generale de Banque SA 28,327
595 G.I.B. Holdings Ltd. 25,241
145 Glaverbel SA 18,751
36 Solvay SA 19,244
---------
128,079
---------
</TABLE>
<TABLE>
<CAPTION>
BRAZIL - 1.75%
<S> <C> <C>
850,000 Companhia Paulista de Forca e Luz 49,053
1,200,000 Lojas Americanas SA, 26,189
1,900 Telebras SA ADR 89,311
---------
164,553
---------
</TABLE>
<TABLE>
<CAPTION>
CHILE - 1.97%
<S> <C> <C>
700 Compania Telecomunicacion
Chile ADR 48,388
1,400 Empresa Nacional de
Electridad SA ADS 28,175
700 Enersis SA ADR 17,675
2,000 Madeco SA ADR 47,000
1,000 Quimica y Minera Chile SA ADR 43,750
---------
184,988
---------
</TABLE>
<TABLE>
<CAPTION>
COLUMBIA - 1.23%
<S> <C> <C>
2,900 Banco Industrial Columbiano ADS 39,513
2,600 Banco Ganadero SA ADR 39,086
2,250 Cementos Diamante ADR 37,091
---------
115,690
---------
</TABLE>
<TABLE>
<CAPTION>
FINLAND - 1.29%
<S> <C> <C>
4,169 Enso-Gutzeit Oy 35,424
4,929 Finnair Oy 38,758
200 Nokia (AB) Oy 14,083
1,000 Valmet Corp. 32,627
---------
120,892
---------
</TABLE>
See accompanying notes to financial statements.
Financial Statement Page 1
<PAGE> 67
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER COMMON STOCKS (CONTINUED) VALUE
OF SHARES
FRANCE - 6.42%
<S> <C>
498 Alcatel Alsthom $ 41,999
958 AXA 50,669
99 Carrefour 58,269
444 (1) Club Mediterranee 43,133
929 Compagnie Francaise
de Petroleum Total 56,382
655 Credit Local De France 52,839
428 Eaux (Compagnie Generale) 41,230
280 Groupe Danone 45,392
845 Lafarge Coppee SA 55,724
400 (1) Peugeot SA 54,825
312 Roussel-Uclaf 48,546
102 Salomon SA 53,990
---------
602,998
---------
</TABLE>
<TABLE>
<CAPTION>
GERMANY - 3.68%
<S> <C> <C>
17 Allianz AG Holding 30,776
121 Bayer AG 30,953
31 Bayerische Motoren Werke AG 17,058
157 Commerzbank AG 35,859
73 Karstadt AG 32,474
147 Mannesmann AG 48,451
8 Muenchener Rueckversicherungs-
Gesellschaft 16,360
102 Siemens AG 51,704
1,167 Veba AG 46,509
108 Volkswagen AG 35,179
---------
345,323
---------
</TABLE>
<TABLE>
<CAPTION>
HONG KONG - 3.61%
<S> <C> <C>
6,000 Cheung Kong (Holdings) Ltd. 32,671
6,300 Hang Seng Bank 51,946
18,000 Hong Kong
Telecommunications Ltd. 32,710
10,000 Hutchison Whampoa Ltd. 54,193
8,000 Sun Hung Kai Properties Ltd. 64,929
6,500 Swire Pacific Ltd. 51,493
11,000 Wharf (Holdings) Ltd. 34,288
5,000 Wing Hang Bank Ltd. 16,911
---------
339,141
---------
</TABLE>
<TABLE>
<CAPTION>
NUMBER COMMON STOCKS (CONTINUED) VALUE
OF SHARES
INDONESIA - 1.47%
<S> <C> <C>
17,500 Astra International $ 34,729
10,000 Bank International Indonesias 34,398
22,500 Indah Kiat Paper & Pulp Corp. 27,039
3,500 Indofood Sukses Makmur 16,863
9,000 Semen Gresik 25,402
---------
138,431
---------
</TABLE>
<TABLE>
<CAPTION>
INDIA - 3.27%
<S> <C> <C>
1,250 Bajaj Auto Ltd. GDR 38,281
1,400 East India Hotels GDR 26,950
1,000 Grasim Industries GDS 22,125
1,150 Hindalco Industries GDR 39,675
2,100 Indian Rayon & Industries GDR 28,875
2,400 Larsen & Toubro Ltd. GDS 49,500
900 Raymond Ltd. GDR 14,625
2,250 Reliance Industries Ltd. GDS 41,344
2,000 Tata Engineering & Locomotive
Co. Ltd. GDR 46,000
---------
307,375
---------
</TABLE>
<TABLE>
<CAPTION>
IRELAND - 1.06%
<S> <C> <C>
3,000 Allied Irish Bank PLC 14,906
3,200 Bank of Ireland 20,095
4,350 CRH PLC 29,851
2,000 Kerry Group PLC 15,116
6,600 Smurfit (Jefferson) Group 19,655
---------
99,623
---------
</TABLE>
<TABLE>
<CAPTION>
ITALY - 1.52%
<S> <C> <C>
24,325 Credito Italiano SpA 28,897
3,950 (1)Fiat SpA 14,816
3,790 Rinascente (La) 22,571
2,975 SAI (Societa Assicuratrice
Industriale) SpA 13,487
5,390 Sasib SpA 14,058
11,400 STET-Societa Finanziaria Telefonica 34,689
2,210 Unicem (Union Cem March Emil) 14,273
---------
142,791
---------
</TABLE>
See accompanying notes to financial statements.
Financial Statement Page 2
<PAGE> 68
<TABLE>
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995 (UNAUDITED)
<CAPTION>
NUMBER COMMON STOCKS (CONTINUED) VALUE
OF SHARES
JAPAN - 30.41%
<S> <C> <C>
13,000 Daiwa Securities Co. Ltd. $ 164,726
16,000 Fujisawa Pharmaceutical Company 158,948
16,000 Hitachi Ltd. 175,167
14,000 Matsushita Electric Works 146,176
30,000 (1)Mazda Motor Corp. 109,480
30,000 Mitsubishi Chemical Corp. 145,973
59,000 (1)Mitsui Engineering & Shipbuilding 142,344
13,000 Mitsui Fudosan Co. Ltd. 156,819
16 Nippon Telephone & Telegraph Corp. 138,350
68,000 (1)NKK Corporation 182,669
18,000 Obayashi Corp. 142,323
2,500 Sony Corp. 130,260
9,000 Sumitomo Bank 175,167
20,000 Sumitomo Metal Mining 163,408
10,000 Sumitomo Trust & Banking 137,863
10,000 Takashimaya Co. 146,987
3,000 TDK Corp 155,096
8,000 Tokyo Steel Manufactoring 154,893
19,000 Tokyu Corporation 128,659
---------
2,855,308
---------
</TABLE>
<TABLE>
<CAPTION>
MALAYSIA - 5.46%
<S> <C> <C>
22,000 Land & General Berhad 57,837
12,000 Malayan Banking Berhad 97,032
16,000 Metacorp Berhad 43,975
21,000 R J Reynolds Berhad 44,333
25,000 Road Builder Holdings Berhad 79,665
14,000 Sungei Way Holdings Berhad 47,679
18,000 Technology Resources
Industries Berhad 46,962
5,000 Telekom Malaysia Berhad 37,642
9,000 United Engineers Ltd. 57,717
---------
512,842
---------
</TABLE>
<TABLE>
<CAPTION>
NETHERLANDS - 3.10%
<S> <C> <C>
566 ABN-AMRO Holdings NV 23,522
973 Ahold (Koninklijke) NV 36,711
288 Akzo Nobel NV 34,732
2,830 Elsevier NV 36,421
590 Fortis Amev NV 34,558
1,008 Koninklijke PTT Nederland NV 35,753
785 Philips Electronics NV 38,439
472 Polygram NV 30,817
152 VNU (Verenigde Nederlandse
Uitgeversbedrijven Verenigd Bezit) 20,230
---------
291,183
---------
</TABLE>
<TABLE>
<CAPTION>
NUMBER COMMON STOCKS (CONTINUED) VALUE
OF SHARES
NORWAY - 1.63%
<S> <C> <C>
16,572 Den Norske Bank AS $ 45,828
630 Hafslund Nycomed Class B 16,415
540 Kvaerner AS 22,961
676 Orkla AS 30,256
2,928 Saga Petroleum A.S. 37,911
---------
153,371
---------
</TABLE>
<TABLE>
<CAPTION>
PERU - 0.96%
<S> <C> <C>
23,830 Banco de Credito del Peru 44,541
24,300 Compania Peruana Telefonica
B Shares 45,744
---------
90,285
---------
</TABLE>
<TABLE>
<CAPTION>
POLAND - 1.00%
<S> <C> <C>
1,700 (1)Agros Holdings S.A. 19,430
1,200 (1)Bank Rozwoju Eksportu S.A. 20,967
1,300 (1)Debica S.A. 18,706
5,000 Elektrim Spolka Akeyina S.A. 18,501
3,900 Polifarb-Cieszyn S.A. 16,515
---------
94,119
---------
</TABLE>
<TABLE>
<CAPTION>
SINGAPORE - 1.99%
<S> <C> <C>
3,000 Cerebos Pacific Ltd. 17,945
8,000 City Developments Ltd. 49,543
13,000 DBS Land Ltd. 38,607
3,000 Overseas Union Bank Ltd. 19,212
2,000 Singapore Airlines Ltd. 18,579
5,000 United Overseas Bank Ltd. 43,280
---------
187,166
---------
</TABLE>
<TABLE>
<CAPTION>
SOUTH AFRICA - 1.58%
<S> <C> <C>
6,300 Amalgamated Banks of South Africa 27,176
230 Anglo American Gold
Investment Co. Ltd. 20,787
2,200 Barlow Ltd. 24,855
1,100 De Beers Centenary AG 29,750
7,800 Iscor 8,438
3,600 (1)Smith (C.G.) Ltd. 22,579
470 South African Breweries Ltd. 14,803
---------
148,388
---------
</TABLE>
<TABLE>
<CAPTION>
SOUTH KOREA - 1.60%
<S> <C> <C>
6,800 Korea Fund, Inc. (closed end
mutual fund) 150,450
---------
</TABLE>
See accompanying notes to financial statements.
Financial Statement Page 3
<PAGE> 69
PORTFOLIO OF INVESTMENTS SEPTEMBER 30, 1995 (UNAUDITED)
<TABLE>
<CAPTION>
NUMBER COMMON STOCKS (CONTINUED) VALUE
OF SHARES
SPAIN - 2.58%
<S> <C> <C>
720 Argentaria (Corporacion Bancaria
de Espana SA) $ 25,718
2,850 Aumar (Autopistas del Mare
Nostrum SA) 34,242
300 Banco Popular Espanol SA 46,808
3,156 Iberdrola SA 23,929
756 Empresa Nacional de Electridad SA 38,910
645 Repsol SA 20,342
1,770 Telefonica De Espana 24,427
2,600 (1)Uralita SA 27,755
---------
242,131
---------
</TABLE>
<TABLE>
<CAPTION>
THAILAND - 1.01%
<S> <C> <C>
2,100 Bangkok Bank Co. Ltd. 23,612
8,100 Industrial Finance Corp. of Thailand 24,868
2,300 Property Perfect Co. Ltd. 22,926
2,700 Thai Farmers Bank Ltd. 23,469
---------
94,875
---------
</TABLE>
<TABLE>
<CAPTION>
TURKEY - 1.94%
<S> <C> <C>
47,000 Adana Cimento Sanayii 26,320
121,900 Akal Tekstil Sanayii 13,897
65,000 Akbank T.A.S. 16,575
120,000 Arcelik A.S. 18,480
50,000 Bagfas Bandirma Gubre
Fabrikalari A.S. 20,500
60,000 Brisa Bridgestone Sabanci Lastik 16,800
31,000 Erciyas Biracilik Ve Malt Sanayii 18,910
26,000 Migros Turk T.A.S. 27,560
62,000 Netas Telekomunik 23,560
---------
182,602
---------
</TABLE>
<TABLE>
<CAPTION>
NUMBER COMMON STOCKS (CONTINUED) VALUE
OF SHARES
UNITED KINGDOM - 11.63%
<S> <C> <C>
6,640 Abbey National plc $56,854
9,675 BAA plc 76,257
5,950 Boots Company plc 53,206
8,350 British Petroleum Co. plc 62,642
11,365 British Sky Broadcasting Group plc 68,532
8,700 British Telecommunications plc 54,389
12,535 BTR plc 64,676
7,950 Guinness plc 65,051
3,725 HSBC Holdings plc 52,824
5,060 Lloyds Bank plc 55,098
20,300 Pilkington plc 63,615
4,615 RTZ Corporation plc 67,563
7,035 Seeboard plc 54,335
14,840 Tesco plc 73,280
10,930 Wolseley plc 63,487
8,840 Zeneca Group plc 159,918
---------
1,091,727
---------
</TABLE>
<TABLE>
<CAPTION>
VENEZUELA - 1.15%
<S> <C> <C>
5,300 Corimon C.A. ADR 29,150
8,500 Mavesa SA 144A ADR 30,031
24,000 Siderurgica Venezolana ADR 48,888
---------
108,069
---------
TOTAL COMMON STOCKS
(COST = $9,158,733) $9,051,452
==========
TOTAL INVESTMENTS,
AT VALUE (NOTE 1)
(COST = $9,515,317) - 100.00% $9,388,555
=========
<FN>
(1) Non-income producing.
The following abbreviations are used in this portfolio.
ADR - American Depository Receipts
ADS - American Depository Shares
GDR - Global Depository Receipts
GDS - Global Depository Shares.
144A - These securites are exempt from registration under rule 144A of the Securities Act of 1933. Such securities may be resold,
normally to qualified institutional buyers, in transactions exempt from registration. See Note 1 of the Notes to Financial
Statements for valuation policy.
Rule 144A securities amounted to $30,031 as of September 30, 1995.
</TABLE>
See accompanying notes to financial statements.
Financial Statement Page 4
<PAGE> 70
Statement of Assets and Liabilities (Unaudited)
<TABLE>
<CAPTION>
September 30, 1995
<S> <C>
ASSETS
Investments in securities, at value (Note 1) (Cost $9,515,317) $ 9,388,555
Cash 1,639,594
Foreign currency holdings, at value (Note 1) (Cost $50,338) 50,394
Organization expenses, net (Note 1) 23,902
Dividends receivable 17,674
Receivable for Fund shares purchased 17,500
Futures margin balance (Note 1) 802
Other assets 8,214
-----------
TOTAL ASSETS 11,146,635
-----------
LIABILITIES
Payable for securities purchased 949,067
Other accrued expenses and liabilities 38,311
-----------
TOTAL LIABILITIES 987,378
-----------
NET ASSETS $10,159,257
===========
Net assets consist of:
Aggregate paid-in capital $10,241,118
Accumulated undistributed net investment income 79,724
Net realized loss (13,321)
Net unrealized depreciation of investments (126,762)
Net unrealized depreciation on foreign currency translation (21,502)
-----------
Net Assets $10,159,257
===========
Shares of capital stock outstanding
(no par value - unlimited number of shares authorized) 677,967
===========
Net asset value and redemption price per share (Note 1) $14.98
======
</TABLE>
See accompanying notes to financial statements.
Financial Statement Page 5
<PAGE> 71
Statement of Operations (Unaudited)
<TABLE>
<CAPTION>
For the Period May 31, 1995*
To September 30, 1995
<S> <C> <C>
INVESTMENT INCOME:
Interest $ 77,464
Dividends, net of foreign withholding taxes of $1,536 17,557
--------
Total investment income $ 95,021
EXPENSES:
Accounting services fees (Note 2) 20,000
Investment advisory fees (Note 2) 16,591
Registration fees 10,290
Distribution (Note 2) 8,296
Transfer agency fees (Note 2) 2,761
Trustees' fees 2,187
Amortization of organization expenses (Note 1) 1,593
Custodian fees 888
Legal fees 400
--------
TOTAL EXPENSES 63,006
LESS FEES WAIVED BY THE ADVISER (NOTE 2) (47,709)
--------
NET EXPENSES 15,297
-------
NET INVESTMENT INCOME 79,724
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS:
Net realized loss on investments and foreign currency transactions (11,401)
Net realized loss on futures transactions (1,920)
Net increase in unrealized depreciation of investments (126,762)
Net increase in unrealized depreciation on foreign currency translation (21,502)
--------
NET REALIZED AND UNREALIZED LOSS ON INVESTMENTS (161,585)
-------
NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS ($81,861)
=======
</TABLE>
*Date of public offering.
See accompanying notes to financial statements.
Financial Statement Page 6
<PAGE> 72
STATEMENT OF CHANGES IN NET ASSETS (UNAUDITED)
<TABLE>
<CAPTION>
FOR THE PERIOD
MAY 31,1995* TO
SEPTEMBER 30, 1995
<S> <C>
FROM OPERATIONS:
Net investment income $ 79,724
Net realized loss on investments and foreign currency transactions (11,401)
Net realized loss on futures transactions (1,920)
Net increase in unrealized depreciation of investments (126,762)
Net increase in unrealized depreciation on foreign currency translation (21,502)
----------
Net decrease in net assets resulting from operations (81,861)
----------
FROM DISTRIBUTIONS TO SHAREHOLDERS --
----------
FROM FUND SHARE TRANSACTIONS:
Proceeds from shares sold 10,693,502
Payments for shares redeemed (452,384)
----------
Net increase in net assets from Fund share transactions 10,241,118
----------
TOTAL INCREASE IN NET ASSETS 10,159,257
NET ASSETS:
Beginning of period --
----------
End of period (including undistributed net investment income of $79,724) $10,159,257
===========
NUMBER OF FUND SHARES:
Sold 708,138
Redeemed (30,171)
----------
Net increase in shares outstanding 677,967
Outstanding at beginning of period --
----------
Outstanding at end of period 677,967
==========
</TABLE>
*Date of public offering.
See accompanying notes to financial statements.
Financial Statement Page 7
<PAGE> 73
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (UNAUDITED)
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Gradison Growth Trust (the "Trust") is registered under the Investment Company
Act of 1940, as amended, as an open-end management investment company. The
Trust was created under Ohio law on May 31, 1983; it commenced investment
operations and the public offering of its shares on August 16, 1983. The Trust
consists of four diversified series, the Gradison-McDonald International Fund,
the Gradison-McDonald Established Value Fund, the Gradison-McDonald
Opportunity Value Fund and the Gradison-McDonald Growth & Income Fund
(collectively, the "Funds"); each of which in effect represents a separate
fund with its own investment policies. This Semiannual Report to Shareholders
pertains only to the Gradison-McDonald International Fund (the "Fund"), the
public offering of shares of which commenced on May 31, 1995.
The following is a summary of the Fund's significant accounting policies:
SECURITIES VALUATION - Listed equity securities are valued at the last sale
price reported on national securities exchanges, or if there were no sales that
day, the security is valued at the closing bid price. Unlisted securities and
short-term obligations (and private placement securities) are generally valued
at the prices provided by an independent pricing service. Portfolio securities
and other assets for which market quotations are not readily available are
valued at their fair value as determined by management of the Fund and approved
in good faith by the Board of Trustees. Short-term securities with remaining
maturities of sixty days or less may be stated at amortized cost, which
approximates value.
FOREIGN CURRENCY TRANSLATION - The accounting records of the Fund are
maintained in U.S. dollars. All assets and liabilities denominated in foreign
currencies ("FC") are translated into U.S. dollars based on the rate of
exchange of such currencies against U.S. dollars on the date of valuation.
Purchases and sales of securities, income and expenses are translated at the
rate of exchange quoted on the respective date that such transactions are
recorded. Differences between income and expense amounts recorded and collected
or paid are adjusted when reported by the custodian bank. The Fund does not
isolate that portion of the results of operations resulting from changes in
foreign exchange rates on investments from the fluctuations arising from
changes in market prices of securities held. Such fluctuations are included
with the net realized and unrealized gain or loss from investments.
Reported net realized foreign exchange gains or losses arise from sales and
maturities of short-term securities, sales of FCs, currency gains or losses
realized between the trade and settlement dates on securities transactions, the
difference between the amounts of dividends, interest, and foreign withholding
taxes recorded on the Fund's books, and the U.S. dollar equivalent of the
amounts actually received or paid. Net unrealized foreign exchange gains and
losses arise from changes in the value of assets and liabilities other than
investments in securities at fiscal year end, resulting from changes in the
exchange rate.
FUTURES CONTRACTS - Initial margin deposits made upon entering into futures
contracts are recognized as assets due from the broker (the Fund's agent in
acquiring the futures position). During the period the futures contract is
open, changes in the value of the contract are recognized as unrealized gains
or losses by "marking to market" on a daily basis to reflect the market value
of the contract at the end of each day's trading.
Variation margin payments are received or made, depending upon whether
unrealized gains or losses are incurred. When the contract is closed, the Fund
records a realized gain or loss equal to the difference between the proceeds
from (or cost of) the closing transaction and the Fund's basis in the contract.
Open future contracts at September 30, 1995 were as follows:
<TABLE>
<CAPTION>
UNREALIZED
MARKET APPRECIATION
TYPE EXPIRATION COST VALUE (DEPRECIATION)
<S> <C> <C> <C> <C> <C>
Long Australian All Ordinaries Index 12/95 $80,485 $80,787 $302
====
</TABLE>
Financial Statement Page 8
<PAGE> 74
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (UNAUDITED)
SECURITIES TRANSACTIONS AND INVESTMENT INCOME - Securities transactions are
accounted for on the trade date (the date the order to buy or sell is
executed), and dividend income is recorded on the ex-dividend date. Interest
income is accrued as earned. Gains and losses on sales of investments are
calculated on the identified cost basis for financial reporting and tax
purposes.
TAXES - It is the Fund's policy to comply with the provisions of the Internal
Revenue Code available to regulated investment companies. As provided therein,
in any fiscal year in which the Fund so qualifies, and distributes at least 90%
of its taxable net income, the Fund will be relieved of federal income tax on
the income distributed. Accordingly, no provision for income taxes has been
made.
In order to avoid imposition of the excise tax applicable to regulated
investment companies, it is also the Fund's intention to declare as dividends
in each calendar year, at least 98% of its net investment income (earned during
the calendar year) and 98% of its net realized capital gains, if any (earned
during the twelve months ended October 31), plus undistributed amounts from
prior years.
The tax basis of investments is equal to the cost as shown on the Statement of
Assets and Liabilities.
For both financial reporting and tax purposes, gross unrealized appreciation
and gross unrealized depreciation of securities at September 30, 1995 was
$114,655 and $241,417, respectively.
FUND SHARE VALUATION AND DISTRIBUTIONS TO SHAREHOLDERS - The net asset value
per share is computed by dividing the net asset value of the Fund (total assets
less total liabilities) by the number of shares outstanding. The redemption
price per share is equal to the net asset value per share.
Distributions to shareholders are recorded on the ex-dividend date. During the
period ended September 30, 1995, the Fund made no distributions.
EXPENSES - Common expenses incurred by the Trust are allocated to the Fund
based on the ratio of the net assets of the Fund to the combined net assets of
the Trust. In all other respects, expenses are charged to the Fund as incurred
on a specific identification basis.
ORGANIZATION EXPENSES - Expenses of organization have been capitalized and are
being amortized on a straight-line basis over 60 months commencing upon the
public offering of the Fund's shares.
NOTE 2 - TRANSACTIONS WITH AFFILIATES
The Trust's investments are managed, subject to the general supervision and
control of the Trust's Board of Trustees, by McDonald & Company Securities,
Inc. ("McDonald"), a registered investment adviser and securities dealer,
pursuant to the terms of an Investment Advisory Agreement ("Agreement"). Under
the terms of the Agreement, the Fund pays McDonald a fee computed and accrued
daily and paid monthly based upon the Fund's daily net assets at the annual
rate of 1.00% of the first $100 million of the Fund's average daily net assets,
.90% of the next $150 million, .80% of the next $250 million and .75% of net
assets in excess of $500 million for acting as its investment adviser. McDonald
has engaged Blairlogie Capital Management ("Blairlogie") as Portfolio Manager
for the Fund pursuant to a Portfolio Management Agreement, and McDonald
compensates Blairlogie from its advisory fee at the rate of .80% of the first
$25 million of average daily net assets, .70% of the next $25 million, .60% of
the next $50 million, .50% of the next $150 million, and .40% of assets in
excess of $250 million. McDonald is to reimburse the Fund for the amount by
which the Fund's aggregate expenses for a fiscal year, including the advisory
fee but excluding interest, taxes and extraordinary expenses, exceed limits set
by state securities regulations.
Financial Statement Page 9
<PAGE> 75
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (UNAUDITED)
The Agreement provides that McDonald bear the costs of salaries and related
expenses of executive officers of the Fund who are necessary for the management
and operations of the Fund. In addition, McDonald bears the costs of preparing,
printing and mailing sales literature and other advertising materials and
compensates the Trust's trustees who are affiliated with McDonald. All expenses
not specifically assumed by McDonald are borne by the Fund.
Under the terms of a Transfer Agency, Accounting Services and Administrative
Services Agreement, McDonald provides transfer agent, dividend disbursing,
accounting services and administrative services to the Fund. The Fund pays
McDonald a monthly fee for transfer agency and administrative services at an
annual rate of $19.25 per shareholder non-zero balance account, plus
out-of-pocket costs for statement paper, statement and reply envelopes and
reply postage. The Fund pays McDonald a monthly fee for accounting services
based on the Fund's average daily net assets at an annual rate of .045% on the
first $100 million, .03% on the next $100 million and .015% on any amount in
excess of $200 million, with a minimum annual fee of $60,000.
Under the terms of an Expense Reimbursement Agreement, McDonald has agreed to
forego fees owed to it under the Advisory Agreement or any other agreement with
the Trust and to reimburse the Fund if, and to the extent that, expenses
(excluding brokerage commissions, taxes, interest and extraordinary items)
borne by the Fund in any fiscal year exceed 2.00% of the average net assets of
the Fund. This agreement is in effect until August 1, 1996 and is subject to
termination by either party upon written notice subsequent to that date. In
addition, McDonald may, at its discretion, agree to waive fees and/or reimburse
the Fund for other expenses in order to limit the Fund's expenses to a
specified percentage of average net assets lower than 2.00%. For the period
ended September 30, 1995, McDonald waived advisory fees of $12,857, transfer
agency fees of $2,761, accounting services fees of $20,000, distribution
expenses of $8,296 and $3,795 of other operating expenses.
In accordance with the terms of a Distribution Service Plan adopted under Rule
12b-1 of the Investment Company Act of 1940, the Fund pays McDonald a service
fee for personal services to shareholders including shareholder liaison
services such as responding to shareholder inquiries and providing information
to customers about their Fund accounts. This fee is computed and paid at an
annual rate of .25% of the Fund's average daily net assets. The Fund also pays
McDonald a fee for its assistance in selling shares of the Fund including
advising shareholders regarding purchase, sale and retention of Fund shares.
This fee is computed and paid at an annual rate of .25% of the Fund's average
daily net assets.
The officers of the Trust are also officers of McDonald.
Each trustee of the Trust who is not affiliated with McDonald receives fees
from the Trust for services as a trustee. The amounts of such fees for each
trustee are as follows: (a) an annual fee of $5,000 payable in quarterly
installments and (b) $500 for each Board of Trustees or committee meeting
attended.
Financial Statement Page 10
<PAGE> 76
NOTES TO FINANCIAL STATEMENTS SEPTEMBER 30, 1995 (UNAUDITED)
NOTE 3 - SUMMARY OF PURCHASES AND SALES OF INVESTMENTS
For the period ended September 30, 1995, cost of purchases, excluding
short-term securities, amounted to $9,515,317. There were no sales of
securities for the period ended September 30, 1995.
NOTE 4 - PORTFOLIO COMPOSITION
The Fund invests in equity securities of non-U.S. issuers. Although the Fund
maintains a diversified investment portfolio, the political or economic
developments within a particular country or region may have an adverse effect
on the ability of domiciled issuers to meet their obligations. Additionally,
political or economic developments may have an effect on the liquidity and
volatility of portfolio securities and currency holdings.
At September 30, 1995 the Portfolio was diversified within the following
industries:
<TABLE>
<S> <C>
Automotive 3.73%
Banking 13.15
Beverages and Tobacco 1.32
Building Materials 3.29
Broadcasting and Publishing 1.33
Chemicals 5.23
Consumer Goods 0.90
Construction and Housing 3.34
Diversified Companies 3.48
Electronics 6.27
Energy 3.01
Financial Services 3.22
Food and Household Products 1.79
Forest Products and Paper 1.88
Health and Personal Care 2.39
Household Appliances and Durables 2.07
Industrial Components 0.20%
Insurance 1.55
Investment Companies 1.60
Machinery and Engineering 3.39
Materials and Commodities 1.06
Merchandising 5.35
Metals and Mining 4.48
Public Services 1.17
Real Estate 4.05
Steel 5.18
Telecommunications 7.31
Textiles and Apparel 0.30
Tourism 0.75
Transportation 2.79
Utilities 4.22
Wholesale Trade 0.20
------
100.00%
======
</TABLE>
Financial Statement Page 11
<PAGE> 77
INTERNATIONAL
FUND
GRADISON-McDONALD
[Picture of desk with foreign money]
A COMMON STOCK FUND INVESTING
IN NON-UNITED STATES COMPANIES
1
<PAGE> 78
FAMILY OF MUTUAL FUNDS
INTERNATIONAL
Growth and Established
Income Value
Opportunity Ohio Tax-Free
Value Income
Government Intermediate
Income Municipal
Money
Market
2
<PAGE> 79
[Picture of
desk with
foreign money]
Whatever your goal or ASPIRATIONS.
Whatever your objective. One thing is certain.
An INVESTMENT made today brings
you that much closer to meeting that OBJECTIVE
and reaching that GOAL...
whether it's buying a house, starting a family,
SAVING for a college education,
or planning a retirement. Hesitate and
time will pass you by.
Increasingly, MUTUAL FUNDS are the
PREFERRED VEHICLE for starting and building
an investment program.
And today, GRADISON-McDONALD is a
preferred name in mutual funds
for a growing number of investors.
1-800-869-5999
3
<PAGE> 80
INTERNATIONAL
FUND
GRADISON-McDONALD INTERNATIONAL FUND SEEKS
TO PROVIDE GROWTH OF CAPITAL PRIMARILY
THROUGH INVESTMENTS IN THE STOCK OF
COMPANIES BASED OUTSIDE OF UNITED STATES.
A WORLD OF OPPORTUNITY
In 1970, the United States accounted for approximately
two-thirds of the world stock market capitalization.
Today, the U.S. accounts for only one-third. While
investing solely in the United States made sense in 1970,
following that same investment strategy today means
excluding a world of opportunities.
WORLD STOCK CAPITALIZATION
1970 1994
U.S. 66% U.S. 37%
Non-U.S. 34% Non-U.S. 63%
Source: Morgan Stanley Capital International
THE POTENTIAL FOR GREATER REWARD
Many international markets have historically delivered
significantly higher returns than the domestic market.
In fact, over the past twenty years, ten markets had
higher returns than the United States.
Source: Morgan Stanley Capital International. Perfomance is
in U.S. Dollars. Investors cannot invest in these unmanaged
indices. The returns shown above represent past performance
and do not reflect the performance of the Gradison-McDonald
International Fund. The returns shown above represent average
returns over a long period of time. Returns for shorter periods
of time differ and include negative returns. There is no
assurance that further returns will be similar to these past
returns.
<TABLE>
<CAPTION> Average
Annual Total
Returns
(20 years ending
12/31/94)
<S> <C>
HONG KONG 23.6%
NETHERLANDS 20.0%
UNITED KINGDOM 19.8%
SINGAPORE 17.7%
JAPAN 17.4%
SWEDEN 16.9%
BELGIUM 16.2%
SWITZERLAND 15.4%
FRANCE 15.2%
AUSTRALIA 14.4%
UNITED STATES 14.1%
</TABLE>
4
<PAGE> 81
LOWER VELOCITY THROUGH DIVERSIFICATION
A portfolio concentrated in just one market is obviously at risk if that market
declines. Investing a portion of a portfolio in a variety of different markets
with varying market cycles may tend to reduce the volatility of a portfolio.
The chart below illustrates the advantage of balancing a portfolio between
U.S. and foreign equities. Over a fifteen year period ending on December 31,
1994, a hypothetical equity portfolio holding 30% international stocks had a
lower level of volatility and greater return potential than a portfolio of 100%
U.S. stocks.
Description of Balancing Risk and Return Graph
The three horizonal axes are 14%, 15%, and 16%. The vertical axes are measures
of standard deviation of 3 to 6 with the higher numbers representing higher
volatility. The data points represent levels of total return and volitality of
varying percentages of U.S. stocks and foreign stocks. The following are the
approximate plot points:
% U.S. stocks Return Volatility standard
------------- ------ -------------------
Std. Deviation
--------------
1- 100% U.S. 14.50% 4.50
2- Less than above 14.75% 4.25
3- " 15.00% 4.125
4- 70% 15.125% 4.00
5- Less than above 15.25% 4.125
6- " 15.50% 4.25
7- " 15.50% 4.40
8- " 15.50% 4.60
9- " 15.40% 4.75
10- " 15.30% 5.10
11- 0% 15.10% 5.40
Source: Lipper Analytical Services, Inc. The chart shows the risk/return
profiles for equity portfolios with varying percentages of U.S. stocks,
represented by the S&P 500, and international stocks represented by the Morgan
Stanley Europe, Australia, and Far East Index ("EAFE") for the fifteen year
period ending December 31, 1994. Both indices are unmanaged, assume
reinvestment of dividends, and are not available as investments. The chart
reflects past performance of the indices, does not predict future results, is
for illustrative purposes only, and does not reflect the past or future
performance of the Gradison-McDonald International Fund. The returns of indices
do not reflect costs involved in investing in foreign securities. The fund's
investment of up to 30% of its assets in emerging market securities may result
in it being more volatile than the EAFE index.
STOCKS OF EMERGING ECONOMIES
Many of these emerging nations are marked by higher economic growth rates than
those of more developed countries. The Gradison-McDonald International Fund
works to take advantage of this growth potential by investing up to one-third
of its assets in emerging markets.
RISKS OF INTERNATIONAL INVESTING
Of course, international investing, particularly investing in emerging markets,
involves greater risks when compared to U.S. investing, such as political
instability, economic uncertainties, high volatility, illiquidity, and currency
fluctuation. The indices returns shown here represent past performance, do not
reflect the Gradison-McDonald International Fund, and are no guarantee of
future returns.
<PAGE> 82
A MANAGEMENT TEAM SELECTED FOR EXPERIENCE
The Gradison-McDonald International Fund is managed by Scotland-based
Blairlogie Capital Management. The firm's three founding partners have over 50
years of combined experience investing internationally. Blairlogie has made a
substantial commitment to technology and uses research and information systems
to actively monitor 44 international markets.
LOW MINIMUM INVESTMENT
The Gradison-McDonald International Fund has a low minimum initial investment
of $1,000. Additional investments can be made for as little as $50.
DIVIDEND REINVESTMENT
You may choose to receive dividends in cash or elect to have them automatically
reinvested in the Fund.
EXCHANGES
You can move money from one Gradison-McDonald fund to another at any time. The
Gradison-McDonald funds currently include:
Growth & Income Fund
Established Value Fund
Opportunity Value Fund
Ohio Tax-Free Income Fund
Intermediate Municipal Income Fund
Government Income Fund
U.S. Government Reserves
ACCESS
[Picture of foreign money]
You can redeem shares on any business day at the closing net asset value.
<PAGE> 83
A TRUSTED NAME
Gradison-McDonald
is headquartered in Cincinnati and has
managed mutual funds since 1976.
The parent company, McDonald & Company
Investments, was founded in 1924
and has been listed on the
New York Stock Exchange since 1983.
It operates a leading regional
investment advisory, investment banking,
and investment brokerage firm
with offices throughout
Ohio, Michigan and Indiana,
and in Atlanta, Boston, Dallas, Chicago,
Los Angeles, the New York City area
and Naples, Florida.
1-800-869-5999
<PAGE> 84
[Picture of phone and envelopes]
To find out more about the
GRADISION-McDONALD
INTERNATIONAL FUND
or other funds in the family
CALL
1-800-869-5999
OR WRITE
Gradison-McDonald Mutual Funds
580 Walnut Street
Cincinnati, Ohio 45202
Gradison-McDonald
You may obtain a prospectus containing complete information
about the Fund from a Gradison-McDonald Mutual Funds
representative or your Investment Consultant. Read it care-
fully before investing. Upon redemption, the value of an
investment in the Fund may be worth more or less than its cost.
McDonald & Company Securities, Inc. --Distributor
8
<PAGE> 85
PART C
OTHER INFORMATION
Item 24. FINANCIAL STATEMENTS AND EXHIBITS
(a)(1) Financial Highlights of the Gradison-McDonald International Fund
("GM-INT")for the period ending September 30, 1995 are included in the
prospectus of that Fund.
The following Financial Statements are included in the Prospectuses of
the Gradison-McDonald Growth and Income Fund ("GM- GI"), the Gradison-McDonald
Established Value Fund, and the Gradison-McDonald Opportunity Value Fund
(collectively "GM-E/O") which are not affected by this Amendment:
Financial Highlights.
(a)(2) Financial Statements of GM-INT included in the Statement of Additional
Information for GM-INT (Unaudited):
Portfolio of Assets at September 30, 1995
Statement of Net Assets and Liabilities at September 30, 1995
Statement of Operations for the fiscal period ended September 30,
1995
Statement of Changes in Net Assets for the fiscal period ended
September 30, 1995.
Notes to Financial Statements
The following Financial Statements are included in the Statement of Additional
Information of the Gradison-McDonald Established Value Fund, and the
Gradison-McDonald Opportunity Value Fund which are not affected by this
Amendment:
Report of Independent Accountant
Statement of Net Assets at March 31, 1995
Statement of Operations for the fiscal period ended March 31, 1995
Statement of Changes in Net Assets for the fiscal period ended March
31, 1995
Notes to Financial Statements
The following Financial Statements are included in the Statement of Additional
Information of the Gradison-McDonald Growth and Income Fund ("GM-GI") which are
not affected by this Amendment:
Report of Independent Accountant
Portfolio of Investments at March 31, 1995
C-1
<PAGE> 86
Statement of Assets and Liabilities at March 31, 1995
Statement of Operations for the fiscal period ended March 31, 1995
Statement of Changes in Net Assets for the fiscal period ended March
31, 1995
Notes to Financial Statements
C-2
<PAGE> 87
(b)Exhibits
(1)(a) First Amended Declaration of Trust.*
(1)(b) Amendment dated October 4, 1991 to Registrant's Declaration of Trust
(Amending Paragraph 2.6).+
(1)(c) Amendments dated May 25, 1995, to First Amended Declaration of
Trust.++
(2)(a) Registrant's By-Laws.**
(2)(b) Amendment to Registrant's By-Laws dated July 16, 1991 (Amending
Section 3.1).+
(3) None.
(4)(a) Form of certificate of share of beneficial interest of GM-E/O.*
(5)(a) Investment Advisory Agreement (GM-E/O) dated October 4, 1991. +
(5)(b) Amendments to Investment Advisory Agreements of GM-E/O dated June 1,
1995.++
(5)(c) Investment Advisory Agreement of GM-E/O dated May 25, 1995.++
(5)(d) Investment Advisory Agreement of GM-INT dated June 1, 1995.++
(5)(e) Sub-Advisory Agreement of GM-INT dated May 25, 1995.++
(6) None.
(7) None.
(8) Custodian Agreement (GM-E/O).*
(8)(a) Custodian Agreement of GM-GI.++
(8)(b) Custodian Agreement of GM-INT with Chase Manhattan Bank.++
(8)(c) Account Agreement with Star Bank (GM-INT).++
(9)(a) Transfer Agency Accounting Services Agreement (GM-E/O) dated June 1,
1995.++
(9)(b) Transfer Agency Accounting Services Agreement (GM-GI) dated February
28, 1995.++
(9)(c) Transfer Agency Accounting Services Agreement (GM-INT) dated June 1,
1995.++
(10) Opinion of Counsel is filed yearly with Registrant's Rule 24f-2
Notice and was most recently filed on May 25, 1995.
(11) None.
(12) None.
(14) Documents used in establishment of individual retirement accounts in
conjunction with shares of Registrant.****
(15)(a) Distribution Plan of GM-E/O, as amended October 31, 1994.***
(15)(b) Distribution Agreements dated June 1, 1995 of GM-E/O.++
(15)(c) Distribution Agreement of GM-GI dated February 28, 1995.++
(15)(d) Distribution Agreement of GM-INT dated June 1, 1995.++
(16)(a) Schedule of Total Return Computations.+
(18) Powers of Attorney of Bradley E. Turner, Daniel Castellini, and
Donald E. Weston.***
(18)(a) Powers of Attorney of Patricia Jamieson, Theodore Emmerich, Jerome
Schnee, Richard Rankin, and Julian Ball.++
C-3
<PAGE> 88
* Incorporated by reference to Exhibits 1,4, and 8 to Registrant's Form N-1
Registration Statement No. 2-84169 previously filed with the Securities and
Exchange Commission on August 9, 1983.
+ Incorporated by reference to Exhibits 1(b),2(b) 5, 15(b) and 16(a)to
Registrant's Form N-1A Registration Statement No. 2-84169 previously filed with
the Securities and Exchange Commission on June 1, 1992.
** Incorporated by reference to Exhibit 2(b) to Registrant's Form N-1
Registration Statement No. 2-84169 previously filed with the Securities and
Exchange Commission on June 2, 1983
**** Incorporated by reference to Exhibit 14 to Registrant's Form N-1A
Registration Statement No. 2-84169 previously filed with the Securities and
Exchange Commission on June 20, 1986.
*** Incorporated by reference to Exhibits 15(a) and 18 to Registrant's Form N-1A
Registration Statement No. 2-84169 previously filed with the Securities and
Exchange Commission on November 23, 1994.
++ Incorporated by reference to Exhibits 1(c), 5(b), 5(c), 5(d), 5(e),8(a),
8(b), 8(c), 9(a), 9(b). 9(c), 15(b), 15(c), 15(d), and 18(a) to Registrant's
Form N-1A Registration Statement No. 2-84169 previously filed with the
Securities and Exchange Commission on July 27, 1995.
C-4
<PAGE> 89
Item 26. NUMBER OF HOLDERS OF SECURITIES
<TABLE>
<CAPTION>
Number of
Record Holders
as of
Title of Class November 15, 1995
<S> <C>
Shares of beneficial interest, without par
value of:
Gradison-McDonald Established Value Fund 13,316
Gradison-McDonald Opportunity Value Fund 5,932
Gradison-McDonald Growth and Income Fund 610
Gradison-McDonald International Fund 735
</TABLE>
Item 28. I- BUSINESS AND OTHER CONNECTIONS OF INVESTMENT ADVISER
Reference is made to the captions "Management of the Fund" on page 13
of the Prospectus of GMINT that is part of Part A of this Registration
Statement, "Trustees and Officers of the Trust" on page 38 of the Statement of
Additional Information of GM-INT that is part of Part B of this Registration
Statement and to Item 29(b) of this Part C of the Registration Statement.
II- BUSINESS AND OTHER CONNECTIONS OF INVESTMENT SUB-ADVISER OF
GRADISON-MCDONALD INTERNATIONAL FUND
The address of Blairlogie Capital Management, Limited is 4th Floor, 125 Princes
Street, Edinburgh EH2 4AD, Scotland.
<TABLE>
<CAPTION>
Name Position with Other Affiliations
Investment Sub-Adviser
<S> <C> <C>
Gavin R. Dobson Chief Executive Officer Director, Blairlogie
Holdings Limited
(U.K.)
James G.S. Smith Chief Investment Director, Blairlogie
Officer Holdings Limited
(U.K.)
John R.W. Stevens Chief Financial Director, Blairlogie
Officer Holdings Limited
(U.K.)
</TABLE>
Item 29. PRINCIPAL UNDERWRITERS
(a) The principal underwriter of the Registrant is McDonald & Company
C-5
<PAGE> 90
Securities, Inc., which also serves as the principal underwriter and investment
adviser for Gradison-McDonald Cash Reserves Trust, Gradison- McDonald Municipal
Trust and Gradison Custodian Trust.
(b) Information pertaining to its directors and officers is contained in
the following table.
<TABLE>
<CAPTION>
Positions
Positions Business With
Name With Underwriter Address Registrant
<S> <C> <C> <C>
Daniel F. Austin Director, Vice 800 Superior Avenue None
Chairman Cleveland Ohio 44114
Jack N. Aydin Director, Managing One Evertrust Plaza None
Director Jersey City, NJ 07302
Eugene H. Bosart, III Director, Managing 260 East Brown Street None
Director Birmingham, MI 48009
Thomas G. Clevidence Director, Managing 800 Superior Avenue None
Director Cleveland, OH 44114
Robert Clutterbuck Director, President, 800 Superior Avenue None
Chief Operating, Cleveland, OH 44114
Officer, Chief
Financial Officer
Dennis J. Donnelly Director, Senior 800 Superior Avenue None
Managing Director Cleveland, OH 44114
David W. Ellis, III Director, and Sr. 580 Walnut Street None
Vice President Cincinnati, OH 45202
(Gradison Division)
David W. Knall Director, Managing One American Square None
Director Indianapolis, IN 46282
Thomas M. McDonald Director, Managing 800 Superior Avenue None
Director, Cleveland, OH 44114
John F. O'Brien Director, Senior 800 Superior Avenue None
Managing Director Cleveland, OH 44114
Thomas M. O'Donnell Director 800 Superior Avenue None
Cleveland, OH 44114
Lawrence T. Oakar Director and 800 Superior Avenue None
Sr. Vice President Cleveland, OH 44114
</TABLE>
C-6
<PAGE> 91
<TABLE>
<S> <C> <C> <C>
James C. Redinger Director, Senior 800 Superior Avenue None
Managing Director Cleveland, OH 44114
William Summers, Jr. Director, Chairman 800 Superior Avenue None
Chief Executive Cleveland, OH 44114
Officer
David D. Sutcliffe Director, Sr. Vice 800 Superior Avenue None
President Cleveland, OH 44114
Francis S. Tobias Director, Managing 800 Superior Avenue None
Director Cleveland, OH 44114
Donald E. Weston Chairman 580 Walnut Street Trustee
Gradison Div. Cincinnati, OH.45202 and Chairman
</TABLE>
Item 30. LOCATION OF ACCOUNTS AND RECORDS
All accounts, books and documents required to be maintained by the
Registrant pursuant to Section 31(a) of the Investment Company Act of 1940 and
Rules 31a-1 through 31(a) thereunder are maintained at the offices of the
Registrant, 580 Walnut Street, Cincinnati, Ohio 45202, except as indicated
below opposite the applicable reference to the aforesaid Rules.
<TABLE>
<CAPTION>
Rule In Possession of:
---- ----------------
<S> <C>
31a-1(b)(1), 31a-1(b)(2)(i)(a)-(f), Star Bank, N.A., Star Bank Center
31a-1(b)(2)(ii), 31a-1(b)(5) and Cincinnati, Ohio 45202 for GM-E/O
31a-1(b)(8) and the Fund and Chase Manhattan
Bank, N.A. Chase Metro Tech
Center, Brooklyn New York, 11245,
for the Gradison-McDonald
International Fund.
</TABLE>
Item 31. MANAGEMENT SERVICES
Not applicable.
Item 32. UNDERTAKINGS
The Registrant hereby undertakes to file a post-effective amendment
with respect to the Gradison-McDonald International Fund series, using
reasonable current financial statements, which need not be audited, within four
to six months from the effective dated of this Amendment.
C-7
<PAGE> 92
The Registrant hereby undertakes to provide, without cost, a copy of
its most recent annual report upon request.
Insofar as indemnification for liability arising under the Securities
Act of 1933 may be permitted to trustees, officers and controlling persons of
the Registrant pursuant to the foregoing provisions or otherwise, the
Registrant has been advised that in the opinion of the Securities and Exchange
Commission, such indemnification is against public policy as expressed in the
Act and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
Registrant of expenses incurred or paid by a trustee, officer or controlling
person of the Registrant in the successful defense of any action, suit or
proceeding) is asserted by such trustee, officer or controlling person in
connection with the securities being registered, the Registrant will, unless in
the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction, the question whether
such indemnification by it is against public policy as expressed in the Act and
will be governed by the final adjudication of such issue.
C-8
<PAGE> 93
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933 and the
Investment Company Act of 1940, the Registrant has duly caused this Amendment to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Cincinnati and State of Ohio on the 19th day of
November 1995.
GRADISON GROWTH TRUST
(Registrant)
By /s/ BRADLEY E. TURNER.*
-----------------------------
Bradley E. Turner President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment to Registration Statement has been signed below by the following
persons in the capacities and on the date indicated.
Registrant hereby certifies that this Amendment to Registration
Statement meets all of the requirements for effectiveness pursuant to paragraph
(b) of Rule 485.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
*/s/ DONALD E. WESTON Chairman of the Board November 19, 1995
(Principal Executive Officer)
*/s/ BRADLEY E. TURNER President "
*/s/ PATRICIA JAMIESON Treasurer "
(Principal Financial and
Accounting Officer)
*/s/ THEODORE EMMERICH Trustee "
*/s/ JEROME SCHNEE Trustee "
*/s/ DANIEL J. CASTELLINI Trustee "
*/s/ RICHARD RANKIN Trustee "
</TABLE>
*By: /s/ Richard M. Wachterman
---------------------------------------
Richard M. Wachterman, Attorney-in-fact
S-1
<TABLE> <S> <C>
<ARTICLE> 6
<CIK> 0000720492
<NAME> GRADISON GROWTH TRUST
<SERIES>
<NUMBER> 4
<NAME> GRADISON-MCDONALD INTERNATIONAL FUND
<MULTIPLIER> 1
<CURRENCY> USD
<S> <C>
<PERIOD-TYPE> 4-MOS
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-START> MAY-31-1995
<PERIOD-END> SEP-30-1995
<EXCHANGE-RATE> 1
<INVESTMENTS-AT-COST> 9,515,317
<INVESTMENTS-AT-VALUE> 9,388,555
<RECEIVABLES> 35,174
<ASSETS-OTHER> 1,722,906
<OTHER-ITEMS-ASSETS> 11,146,635
<TOTAL-ASSETS> 0
<PAYABLE-FOR-SECURITIES> 949,067
<SENIOR-LONG-TERM-DEBT> 0
<OTHER-ITEMS-LIABILITIES> 38,311
<TOTAL-LIABILITIES> 987,378
<SENIOR-EQUITY> 0
<PAID-IN-CAPITAL-COMMON> 10,241,118
<SHARES-COMMON-STOCK> 677,967
<SHARES-COMMON-PRIOR> 0
<ACCUMULATED-NII-CURRENT> 79,724
<OVERDISTRIBUTION-NII> 0
<ACCUMULATED-NET-GAINS> (13,321)
<OVERDISTRIBUTION-GAINS> 0
<ACCUM-APPREC-OR-DEPREC> (148,264)
<NET-ASSETS> 10,159,257
<DIVIDEND-INCOME> 17,557
<INTEREST-INCOME> 77,464
<OTHER-INCOME> 0
<EXPENSES-NET> 15,297
<NET-INVESTMENT-INCOME> 79,724
<REALIZED-GAINS-CURRENT> (13,321)
<APPREC-INCREASE-CURRENT> (148,264)
<NET-CHANGE-FROM-OPS> (81,861)
<EQUALIZATION> 0
<DISTRIBUTIONS-OF-INCOME> 0
<DISTRIBUTIONS-OF-GAINS> 0
<DISTRIBUTIONS-OTHER> 0
<NUMBER-OF-SHARES-SOLD> 708,138
<NUMBER-OF-SHARES-REDEEMED> 30,171
<SHARES-REINVESTED> 0
<NET-CHANGE-IN-ASSETS> 10,159,257
<ACCUMULATED-NII-PRIOR> 0
<ACCUMULATED-GAINS-PRIOR> 0
<OVERDISTRIB-NII-PRIOR> 0
<OVERDIST-NET-GAINS-PRIOR> 0
<GROSS-ADVISORY-FEES> 16,591
<INTEREST-EXPENSE> 0
<GROSS-EXPENSE> 63,006
<AVERAGE-NET-ASSETS> 4,936,762
<PER-SHARE-NAV-BEGIN> 15.000
<PER-SHARE-NII> .118
<PER-SHARE-GAIN-APPREC> (.134)
<PER-SHARE-DIVIDEND> 0
<PER-SHARE-DISTRIBUTIONS> 0
<RETURNS-OF-CAPITAL> 0
<PER-SHARE-NAV-END> 14.984
<EXPENSE-RATIO> 0.92
<AVG-DEBT-OUTSTANDING> 0
<AVG-DEBT-PER-SHARE> 0
</TABLE>
